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As filed with the Securities and Exchange Commission on December 19, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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MIDWEST BANC HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 6712 36-3252484
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
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501 WEST NORTH AVENUE
MELROSE PARK, ILLINOIS 60160
(708) 865-1053
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
ROBERT L. WOODS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MIDWEST BANC HOLDINGS, INC.
501 WEST NORTH AVENUE
MELROSE PARK, ILLINOIS 60160
(708) 865-1053
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies of communications to:
DOUGLAS M. HAMBLETON, ESQ. MATTHEW C. BOBA, ESQ.
STEVEN J. GRAY, ESQ. STATHY DARCY, ESQ.
VEDDER, PRICE, KAUFMAN & KAMMHOLZ CHAPMAN AND CUTLER
222 NORTH LASALLE STREET, SUITE 2600 111 WEST MONROE STREET
CHICAGO, ILLINOIS 60601-1003 CHICAGO, ILLINOIS 60603-4080
(312) 609-7500 (312) 845-3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount Offering Price Aggregate Amount of
to Be Registered to Be Registered Per Share (1) Offering Price (1) Registration Fee
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Common Stock, par value
$0.01 per share 1,265,000 Shares $14.00 $17,710,000 $5,225
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(1) Calculated pursuant to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 19, 1997
1,100,000 SHARES
[LOGO] MIDWEST BANC HOLDINGS, INC.
COMMON STOCK
All of the shares of Common Stock, par value $0.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being issued and sold by
Midwest Banc Holdings, Inc. (the "Company").
While the Company's Common Stock has traded occasionally in the
over-the-counter "OTC" market, and bid prices are quoted on the OTC Bulletin
Board, prior to this Offering there has not been an active trading market for
the Company's shares. It is currently estimated that the initial public
offering price per share will be between $12.00 and $14.00. See "Market for
Common Stock and Dividends." For information relating to the determination of
the initial public offering price of the Common Stock, see "Underwriting." The
Company has applied to have its Common Stock approved for quotation on The
Nasdaq National Market(SM) under the symbol "MBHI."
INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
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THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE BANK INSURANCE FUND, THE
SAVINGS ASSOCIATION INSURANCE FUND, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT (1) COMPANY (2)
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Per Share . . . . . . . $ $ $
Total (3) . . . . . . . $ $ $
====================================================================================================================================
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(1) See "Underwriting" for information concerning indemnification arrangements
with the Underwriters.
(2) Before deducting expenses of the Offering, estimated at $400,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
165,000 additional shares of Common Stock solely to cover over-allotments,
if any, on the same terms and conditions as shown above. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $__________, $___________ and $__________,
respectively.
The shares of Common Stock being offered hereby are being offered severally
by the Underwriters named herein subject to receipt and acceptance by them and
subject to the right to reject any order in whole or in part. See
"Underwriting." It is anticipated that delivery of the certificates for the
shares of Common Stock will be made against payment therefor on or about
_________________, 1998.
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HOWE BARNES INVESTMENTS, INC.
, 1998
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MIDWEST BANC HOLDINGS, INC.
[Map of northern & central Illinois area
depicting locations of
Company's banking centers.]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK PRIOR TO
THE PRICING OF THE OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE
COMMON STOCK, THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE PRICING OF
THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES SEE
"UNDERWRITING."
IN CONNECTION WITH THE OFFERING, CERTAIN PERSONS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET(SM)
IN ACCORDANCE WITH RULE 103 UNDER REGULATION M.
The Company intends to furnish its stockholders with an annual report
containing audited financial statements for each fiscal year and an opinion
thereon expressed by independent accountants and with quarterly reports
containing unaudited summary information for the first three quarters of each
fiscal year.
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is
qualified in its entirety by, the more detailed information, including "Risk
Factors," and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus (i) gives effect to the two-for-one stock split effected on
December 17, 1997 and (ii) assumes no exercise of the Underwriters'
over-allotment option.
THE COMPANY
Midwest Banc Holdings, Inc. (the "Company") is a community-based bank
holding company headquartered in Melrose Park, Illinois. The Company provides a
wide range of banking services, personal and corporate trust services,
residential mortgage services and limited securities brokerage services. The
Company's principal operating subsidiaries are four Illinois community banks:
Midwest Bank and Trust Company, Midwest Bank, Midwest Bank of McHenry County and
The National Bank of Monmouth (collectively, the "Banks"). In addition, the
Company has three consolidated nonbank subsidiaries that provide trust, mortgage
and data processing services.
The Banks are community-oriented, full-service commercial banks,
providing a wide range of banking services to individuals, small-to-medium-
sized businesses, government and public entities and not-for-profit
organizations. The Banks operate out of 13 locations with nine banking centers
in the greater Chicago metropolitan area and four banking centers in Western
Illinois. Midwest One Mortgage Services, Inc., a subsidiary of Midwest Bank, is
a residential mortgage brokerage business offering mortgage services throughout
the Chicago metropolitan area. Midwest Trust Services, Inc., a subsidiary of
Midwest Bank and Trust Company, provides trust services for individuals and
corporations. First Midwest Data Corp., a subsidiary of the Company, provides
data processing services to the Company and the Banks except The National Bank
of Monmouth.
The Company functions as a network of autonomous banks with centralized
planning and staff support functions. Each Bank has full responsibility for
day-to-day banking operations, while supported by accounting, auditing,
financial and strategic planning, marketing, human resources, loan review and
regulatory compliance services located at the holding company level. The
Company focuses on establishing and maintaining long-term relationships with
customers and is committed to meeting the financial services needs of the
communities it serves. In particular, the Company has emphasized in the past and
intends to continue to emphasize its relationships with individual customers and
small-to-medium-sized businesses. The Company actively evaluates the credit
needs of its markets, including low- and moderate-income areas, and offers
products that are responsive to the needs of its customer base. The markets
served by the Company provide a mix of real estate, commercial and consumer
lending opportunities, as well as a stable core deposit base.
As of September 30, 1997, the Company had consolidated total assets of
$878.8 million, total loans of $485.2 million, total deposits of $776.1 million
and stockholders' equity of $51.0 million. The Company achieved a return on
average equity of 19.36% and a return on average assets of 1.01% for the year
ended December 31, 1996. As of September 30, 1997, Midwest Trust Services,
Inc. maintained trust assets with an aggregate market value of $120.5 million.
Midwest One Mortgage Services, Inc. originated mortgage loans totaling $30.2
million for the nine months ended September 30, 1997 and $28.6 million for the
year ended December 31, 1996.
The Company has achieved significant profitable growth within its
markets since 1992. For the four-year period ended December 31, 1996, the
average annual rate of increase for total assets, total deposits and net income
was 27.6%, 26.7% and 36.8%, respectively. The Company considers its recent
growth a result of its strategy to become a low-cost provider of premium rate
deposits and competitively priced loan products within its core markets.
The Company believes that its continued success is dependent on its
ability to provide to its customers value-added retail and commercial banking
programs and other financial services. The growth strategy of the Company is
to
3
<PAGE> 5
increase its core banking business, further develop its mortgage, trust and
securities brokerage activities, and expand into other financial services. Key
aspects of the Company's strategy include the following:
- Maintain high levels of customer service through a decentralized operating
structure.
- Increase market share within existing markets and expand into new markets
through branch openings and selected acquisitions.
- Cross-sell value-added products and services.
- Maintain a leadership position in product development and marketing.
- Increase the revenue base of nonbank financial service subsidiaries.
- Increase the loan-to-deposit ratios of the Banks.
- Expand usage of supplemental funding sources for incremental growth,
liquidity and interest rate risk management.
Management believes that its strategy will support the continued profitable
growth of the Company and allow it to maintain consistent high performance and
leadership positions in its markets.
The Company, formerly known as First Midwest Corporation of Delaware,
adopted its present name effective December 17, 1997. The Company's offices are
located at 501 West North Avenue, Melrose Park, Illinois 60160, and its
telephone number is (708) 865-1053.
THE OFFERING
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Common Stock offered . . . . . . . . . . . 1,100,000 shares
Common Stock to be outstanding after the
Offering (1) . . . . . . . . . . . . . 11,115,898 shares
Use of Proceeds . . . . . . . . . . . . . . The Company will use approximately $5.0 million of the net
proceeds from the Offering for capital contributions to the
Banks to fund anticipated growth and expansion and will
apply the remaining net proceeds from the Offering to reduce
short-term borrowings under the Company's revolving line of
credit. See "Use of Proceeds" and "Capitalization."
Proposed Nasdaq symbol . . . . . . . . . . MBHI
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(1) Under the Company's 1996 Stock Option Plan, 500,000 shares of Common Stock
have been reserved for issuance. As of December 17, 1997, options to
purchase 111,000 shares of Common Stock were outstanding under the plan, of
which options for 15,500 shares were exercisable.
4
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SUMMARY CONSOLIDATED FINANCIAL DATA
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NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF INCOME DATA:
Total interest income . . . . . . . $ 49,663 $ 42,110 $ 57,298 $ 47,603 $ 36,406 $ 31,400 $ 27,186
Total interest expense . . . . . . 25,813 21,135 28,918 22,619 14,557 12,890 11,804
--------- --------- --------- --------- --------- -------- ---------
Net interest income . . . . . . . . 23,850 20,975 28,380 24,984 21,849 18,510 15,382
Provision for loan losses . . . . . 1,829 1,097 1,718 1,542 1,966 1,680 1,406
Other income (loss) . . . . . . . . 3,715 3,136 4,325 3,427 (253) 4,383 2,717
Other expenses . . . . . . . . . . 15,395 14,086 19,082 17,686 17,219 15,217 12,233
--------- --------- --------- --------- --------- -------- ---------
Income before income tax expense. . 10,341 8,928 11,905 9,183 2,411 5,996 4,460
Income tax expense . . . . . . . . 4,063 3,378 4,597 3,151 509 1,989 1,503
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Net income . . . . . . . . . . . . $ 6,278 $ 5,550 $ 7,308 $ 6,032 $ 1,902 $ 4,007 $ 2,957
========= ========= ========= ========= ========= ======== =========
PER SHARE DATA: (1)
Net income . . . . . . . . . . . . $ 0.63 $ 0.56 $ 0.73 $ 0.60 $ 0.19 $ 0.38 $ 0.28
Cash dividends declared . . . . . 0.04 0.03 0.05 0.05 0.05 0.05 0.05
Book value at end of period . . . 5.09 4.00 4.29 3.83 2.55 3.20 2.90
Tangible book value at end of
period . . . . . . . . . . . . . 4.84 3.73 4.03 3.55 2.26 2.89 2.78
SELECTED FINANCIAL RATIOS: (2)
Return on average assets . . . . . 1.01% 1.03% 1.01% 1.02% 0.38% 0.89% 0.83%
Return on average equity . . . . . 18.79 20.01 19.36 18.65 6.24 12.33 10.05
Dividend payout ratio . . . . . . 6.35 5.36 6.85 8.33 26.32 13.16 17.86
Average equity to average assets. . 5.40 5.14 5.20 5.49 6.05 7.21 8.28
Net interest margin (tax
equivalent) . . . . . . . . . . 4.15 4.24 4.27 4.67 4.83 4.74 4.30
Allowance for loan losses to
total loans at the end of
period . . . . . . . . . . . . 1.28 1.29 1.27 1.28 1.31 1.23 1.09
Nonperforming loans to total
loans at the end of period (3).. 0.74 1.18 1.03 0.60 1.08 1.08 1.06
Net loans charged off
(recoveries) to average total
loans . . . . . . . . . . . . . 0.22 0.16 0.26 0.28 0.46 0.50 0.56
Tier 1 risk-based capital . . . . . 9.34 9.14 9.57 7.64 9.27 8.94 10.81
Total risk-based capital . . . . . 10.52 10.32 10.76 8.66 10.44 9.92 11.71
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
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1997 1996 1996 1995 1994 1993 1992
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BALANCE SHEET DATA:
Total assets . . . . . . . . . . $878,755 $757,353 $786,070 $660,315 $533,157 $468,395 $373,461
Total earning assets . . . . . . 830,445 707,256 737,338 611,597 480,171 427,393 334,521
Total loans . . . . . . . . . . . 485,235 394,193 420,655 359,639 304,242 268,360 221,016
Allowance for loan losses . . . . 6,191 5,094 5,342 4,603 3,979 3,309 2,414
Total deposits . . . . . . . . . 776,103 675,350 701,205 590,671 482,892 408,395 338,758
Borrowings . . . . . . . . . . . 38,921 24,528 27,495 16,077 13,490 10,843 1,776
Shareholders' equity . . . . . . 50,991 40,025 42,962 38,387 26,605 33,552 30,508
Tangible book value . . . . . . . 48,507 37,353 40,344 35,554 23,557 30,329 29,286
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(1) All per share amounts have been adjusted to reflect two-for-one stock
splits effective on December 17, 1997, in April 1996 and in April 1992.
(2) Selected financial ratios for the nine months ended September 30, 1997 and
1996 are annualized.
(3) Includes total nonaccrual, impaired and all other loans 90 days past due.
5
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Statements contained in this Prospectus that relate to the Company's
beliefs or expectations as to future events relating to, among other things, the
success of the Company's growth strategy, the sufficiency of the Company's
allowance for loan losses, changes in economic conditions including interest
rates, management's ability to manage interest rate and credit risks and the
impact of future regulations, are not statements of historical fact and are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Although the Company believes that the assumptions upon
which such forward-looking statements are based are reasonable within the
bounds of its knowledge of its business and operations, it can give no
assurance that the assumptions will prove to have been correct. Reference to
sections in this Prospectus which contain forward-looking statements and
important factors that could cause actual results to differ materially and
adversely from the Company's expectations and beliefs are set out under "Risk
Factors" and "Management's Discussion and Analysis of Results of Operations and
Financial Condition." These factors should be carefully considered by
potential investors.
6
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RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
following risk factors, as well as the other information contained in this
Prospectus, in evaluating the Company and its business and in deciding whether
to purchase any of the Common Stock offered hereby.
MANAGEMENT OF GROWTH
The Company's past and expected growth involves a variety of risks
including maintaining loan quality in the context of significant portfolio
growth, maintaining adequate management personnel and systems to oversee such
growth, maintaining adequate internal audit, loan review and compliance
functions, and implementing additional policies, procedures and operating
systems required to support such growth. Failure of the Company to successfully
address these issues could have a material adverse effect on the Company's
results of operations and financial condition.
The Company's growth strategy also includes increasing revenues
generated from trust, mortgage and securities brokerage services, as well as the
introduction of other financial services. There can be no assurance that the
Company will be successful in developing, introducing or managing new product or
service offerings in the trust, mortgage, securities brokerage or other
financial service areas or that the Banks' customers will be receptive to such
offerings.
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses is maintained at levels
considered adequate by management to absorb anticipated losses in its loan
portfolio. The amount of future losses is susceptible to changes in economic,
operating and other conditions, including changes in interest rates, beyond the
control of the Company. Such losses may exceed current estimates. Although
management believes that the Company's allowance for loan losses is adequate to
absorb identifiable losses on existing loans, there can be no assurance that the
allowance will prove sufficient to cover actual loan losses in the future. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Financial Condition."
INTEREST RATE EFFECTS
The Banks' primary source of income is the spread between interest
earned on loans and investments and the interest paid on deposits and
borrowings. From time to time, it is expected that the Banks will experience
"gaps" in the interest rate sensitivities of their assets and liabilities,
meaning that either their interest bearing assets will be more sensitive to
changes in market interest rates than their interest-earning liabilities, or
vice versa. Under either circumstance, if market interest rates move contrary to
the Banks' position, the "gap" will work against the Banks and their earnings
may be negatively affected.
ECONOMIC CONDITIONS
Economic conditions beyond the Company's control may have a significant
impact on the Company's operations, including changes in net interest income.
Examples of such conditions include: (i) the strength of credit demand by
customers; (ii) the introduction and growth of new investment instruments and
transaction accounts by nonbank financial competitors; and (iii) changes in the
general levels of interest rates, including changes resulting from the monetary
activities of the Board of Governors of the Federal Reserve System (the "Federal
Reserve").
Economic growth in the Company's market areas is dependent upon the
local economy. Adverse changes in the economy of the Chicago metropolitan area
and other market areas would likely reduce the Company's growth rate and could
otherwise have a negative effect on its business, including the demand for new
loans, the ability of customers to repay loans and the value of the collateral
pledged as security therefor.
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COMPETITION
The Company and the Banks face strong direct competition for deposits,
loans and other financial services from other commercial banks, thrifts, credit
unions, stockbrokers and finance divisions of auto and farm equipment
companies. Some of the competitors are local, while others are statewide or
nationwide. Several major multibank holding companies currently operate in the
Chicago metropolitan market. These financial institutions are generally much
larger than the Company and have greater access to capital and other resources.
Some of the financial institutions and financial services organizations with
which the Company competes are not subject to the same degree of regulation as
that imposed on bank holding companies, and federally insured, state-chartered
banks and national banks. As a result, such nonbank competitors have
advantages over the Company in providing certain services. See
"Business--Competition."
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Company's
future success will depend in part on its ability to address the needs of its
customers by using technology to provide products and services that will satisfy
customer demands for convenience as well as to create additional efficiencies in
the Company's operations. Many of the Company's competitors have substantially
greater resources to invest in technological improvements. There can be no
assurance that the Company will be able to effectively implement such products
and services or be successful in marketing such products and services to its
customers.
NO ASSURANCE OF EXPANSION OR ACQUISITIONS
The Company may expand its markets by establishing new banks or
additional branches. To the extent the Company undertakes expansion in this
manner, the Company is likely to experience the effects of higher operating
expenses relative to operating income, which may limit increases in short-term
profitability. The Company's ability to expand by establishing new banks or
branch offices is dependent on its ability to identify advantageous office
locations and generate new deposits and loans from those locations that will
create an acceptable level of net income for the Company. Though successful in
the past, there can be no assurance the Company will be able to successfully
establish additional banks or branches on a profitable basis in the future.
The Company's expansion strategy also may involve acquiring existing
institutions. Acquisition candidates may not be available on terms favorable to
the Company in the future. The Company must compete with a variety of
institutions and individuals for suitable acquisition candidates. Competition
from other institutions could affect the Company's ability to make acquisitions,
increase the price that the Company pays for certain acquisitions and increase
the Company's resources devoted to analyzing possible acquisitions.
Furthermore, acquisitions of financial institutions are subject to regulatory
approval. There can be no assurance that potential acquisitions that meet the
Company's investment criteria will be available on terms acceptable to the
Company or that sufficient financing for or the required regulatory approval of
any proposed acquisitions will be obtained, nor can there be any assurance that
the Company will be able to successfully operate and manage any business it does
acquire so as to establish, maintain or increase profitability. At present, the
Company is not a party to any understanding, letter of intent or binding
agreement with respect to the acquisition of the stock or assets of an existing
entity. See "Supervision and Regulation."
RELIANCE ON KEY PERSONNEL
The Company's success has been and will be greatly influenced by its
continuing ability to retain the services of its existing senior management and,
as it expands, to attract and retain qualified additional senior and middle
management. The unexpected loss of the services of any of the key management
personnel, or the inability to recruit and retain qualified personnel in the
future, could have an adverse effect on the Company's business and financial
results. Currently, the Company or the Banks are beneficiaries under key-man
life insurance policies on four key members of management each in the amount of
$1.0 million. See "Management."
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DILUTION
Purchasers of shares of Common Stock offered hereby will suffer an
immediate and substantial dilution in net tangible book value per share of
Common Stock. The net tangible book value of the Company at September 30, 1997
was approximately $48.5 million or $4.84 per share of Common Stock. Based upon
an assumed initial public offering price of $13.00 per share, the dilution per
share to new stockholders would be $7.48. See "Dilution."
GOVERNMENT REGULATION
The Company and the Banks are subject to extensive federal and state
legislation, regulation and supervision. Recently enacted, proposed and future
legislation and regulations have had, will continue to have or may have
significant impact on the financial services industry. Some of the legislative
and regulatory changes may benefit the Company and the Banks; others, however,
may increase their costs of doing business and assist competitors of the Company
and the Banks. There can be no assurance that state or federal regulators will
not, in the future, impose further restriction or limits on the Company's
activities. See "Supervision and Regulation."
YEAR 2000 COMPLIANCE
A critical issue has emerged in the banking industry and for the economy
overall regarding how existing application software programs and operating
systems can accommodate the date value for the year 2000. Many existing
application software products in the marketplace were designed only to
accommodate a two digit date position which represents the year (e.g., '95' is
stored on the system and represents the year 1995). As a result, the year 1999
(i.e., '99') could be the maximum date value these systems will be able to
accurately process. Management is in the process of working with its software
vendors to assure that the Company is prepared for the year 2000. Management
does not anticipate that the Company will incur material operating expenses or
be required to invest heavily in computer system improvements to be year 2000
compliant. Nevertheless, the inability of the Company to successfully address
year 2000 issues could result in interruptions in the Company's business and
have a material adverse effect on the Company's results of operations.
RESTRICTIONS ON DIVIDENDS
The Company has previously paid regular quarterly dividends. Although
the Company anticipates paying dividends on a quarterly basis in the future,
there can be no assurance that the Company will be able to do so. The Company's
source of funds for dividend payment is the income earned by the Banks, a
portion of which is paid to the Company in the form of monthly or quarterly
dividends. The Banks are subject to certain restrictions on the amount of
dividends they may pay without regulatory approval. The Company is also subject
to restrictions on the payment of dividends under its agreements with its
principal lender.
SUBSTANTIAL CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND OTHER AFFILIATED
STOCKHOLDERS
After the Offering, the directors of the Company (the "Directors"), the
executive officers of the Company and certain members of their families will
beneficially own approximately 41.8% of the outstanding shares of Common Stock
(41.2% if the Underwriters' over-allotment option is exercised in full) and are
likely to continue to exercise substantial control over the Company's affairs.
As a result, management of the Company will, if acting together, be able to
control most matters requiring approval by the stockholders of the Company,
including the election of directors. The voting control of management would
also have the effect of delaying or preventing a change in control of the
Company that was not approved by management. See "Principal Stockholders" and
"Description of Capital Stock."
LIMITED PUBLIC MARKET FOR COMMON STOCK
Prior to the Offering, there has been a limited public market for the
Common Stock in the over-the-counter market. See "Market for Common Stock and
Dividends." While the Company has applied for inclusion in The Nasdaq National
Market(SM), there can be no assurance that following the Offering an active
public market for the Common Stock
9
<PAGE> 11
will develop or be sustained. The initial public offering price of the Common
Stock will be determined by negotiations between the Company and the
Underwriters and may not be indicative of the market price of the Common Stock
after the Offering. See "Underwriting." Additionally, the stock market has
from time to time experienced extreme price and volume volatility. These
fluctuations may be unrelated to the operating performance of particular
companies whose shares are traded. Market fluctuations may adversely affect
the market price of the Common Stock. A variety of events, including
regulatory developments, quarterly variations in operating results, news
announcements, trading volume, general market trends and other factors could
result in fluctuations in the price of the Common Stock, and there can be no
assurance that the market price of the Common Stock will not decline below the
initial public offering price.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), the Company's
By-Laws (the "By-Laws"), and the Delaware General Corporation Law ("DGCL") may
have the effect of impeding the acquisition or control of the Company by means
of a tender offer, a proxy fight, open-market purchases or otherwise in a
transaction not approved by the Board of Directors of the Company (the "Board of
Directors"). Certain provisions will also render the removal of the current
Board of Directors or management of the Company more difficult. Among other
provisions, the Company's Certificate of Incorporation and By-Laws include
provisions authorizing "blank check" preferred stock, limiting the ability to
fill vacancies to the Board of Directors, requiring advance notice with respect
to stockholder proposals and director nominations, eliminating the power of
stockholders to act by written consent and requiring the vote of the holders of
66 2/3% of the outstanding shares to amend certain anti-takeover provisions in
the Certificate of Incorporation. The Board of Directors has also adopted,
subject to approval of stockholders at the Company's next annual or special
meeting of stockholders, provisions to be included in the By-Laws to implement a
classified Board of Directors with staggered terms. See "Description of Capital
Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Following completion of the Offering, the Company will have 11,115,898
shares of Common Stock issued and outstanding (11,280,898 if the Underwriters'
over-allotment option is exercised in full), assuming no exercise of any
outstanding options to purchase shares of Common Stock. The 1,100,000 shares
offered hereby (1,265,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), except for any shares
which are purchased by affiliates of the Company. The Directors and executive
officers of the Company, who own an aggregate of 4,637,858 shares, have agreed
not to offer, sell, or contract to sell any Common Stock for a period of 180
days after the date of the Company's issuance of the Common Stock sold in the
Offering without the prior written consent of the Representatives. See
"Underwriting." Upon expiration of this 180-day period however, all of these
shares (representing 41.8% of the total number of shares which will be
outstanding following completion of the Offering) could be resold by these and
other persons who are affiliates of the Company, subject to certain requirements
of Rule 144 under the Securities Act, including a limit on the number of shares
that may be sold in any three-month period equal to the greater of (a) 1% of the
shares outstanding (approximately 111,200 shares following completion of the
offering or approximately 112,800 if the over-allotment option is exercised in
full) or (b) the average weekly trading volume of shares of Common Stock for the
four-week period prior to the time of such resale. Sales of a significant
number of shares of Common Stock in the public market following the Offering, or
the perception that such sales could occur, could adversely affect the market
price of the Common Stock. See "Shares Eligible for Future Sale."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,100,000 shares of
Common Stock in the Offering, assuming an initial offering price of $13.00 per
share and after deducting the underwriting discount and estimated offering
expenses, are estimated to be $12,899,000 ($14,893,850 if the over-allotment
option is exercised in full).
The Company will use approximately $5.0 million of the net proceeds from
the Offering for capital contributions to the Banks to fund anticipated
continued growth and expansion and will apply the balance of the net proceeds
from the Offering to reduce borrowings under the Company's revolving line of
credit. The Company's revolving line of credit provides for a maximum
outstanding amount of $18.0 million and is due on May 1, 1998. Interest accrues
under the revolving line of credit, at the option of the Company, at the 30-,
60-or 90-day London Inter-Bank Offered Rate plus 100 basis points or the prime
rate. As of November 30, 1997, the Company had borrowings of approximately $12.9
million outstanding under the line of credit. See "Business--Strategy." The
timing of the expenditure of such net proceeds will depend on the funding
requirements of the Company and the availability of other capital resources.
Pending application of the net proceeds as described above, the Company intends
to invest such proceeds in marketable securities. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition--Liquidity."
11
<PAGE> 13
MARKET FOR COMMON STOCK AND DIVIDENDS
LIMITED PRIOR TRADING MARKET
The Company's Common Stock trades occasionally in the over-the-counter
market and the bid price is quoted on the OTC Bulletin Board. Accordingly,
although a limited market for the Company's Common Stock exists, quotations of
the bid and ask prices may not be indicative of the fair value of the Common
Stock.
It is expected that the Common Stock will trade in the over-the-counter
market and the Company has applied for inclusion in The Nasdaq National Market
System(SM) under the symbol "MBHI." There can be no assurance, however, that an
active or liquid trading market will develop in the Common Stock.
On December 12, 1997, the last reported bid and ask prices for the
Common Stock as quoted by Howe Barnes Investments, Inc. were $12.50 and $13.00,
respectively. The table below sets forth the high and low bid prices quoted for
the Common Stock during the periods indicated. Such over-the-counter market
quotations reflect interdealer prices, without retail markup, markdown or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter . . . . . . . . . . . . . . . . . . $ 6.31 $ 6.25
Second Quarter . . . . . . . . . . . . . . . . . 6.50 6.31
Third Quarter . . . . . . . . . . . . . . . . . . 6.63 6.50
Fourth Quarter . . . . . . . . . . . . . . . . . 6.75 6.63
1996
First Quarter . . . . . . . . . . . . . . . . . . $ 7.00 $ 6.75
Second Quarter . . . . . . . . . . . . . . . . . 7.31 7.00
Third Quarter . . . . . . . . . . . . . . . . . . 7.50 7.31
Fourth Quarter . . . . . . . . . . . . . . . . . 8.50 7.50
1997
First Quarter . . . . . . . . . . . . . . . . . . $ 9.00 $ 8.50
Second Quarter . . . . . . . . . . . . . . . . . 9.50 9.00
Third Quarter . . . . . . . . . . . . . . . . . . 11.00 9.50
Fourth Quarter (through December 12, 1997) . . . 13.13 11.00
</TABLE>
As of the close of business on November 30, 1997, the Company had approximately
438 holders of record of its Common Stock.
12
<PAGE> 14
DIVIDENDS
The Company has paid quarterly cash dividends on the Common Stock since
1984. Since January 1, 1996, the Company has declared per share cash dividends
with respect to its Common Stock as follows:
<TABLE>
<CAPTION>
<S> <C>
1996
First Quarter . . . . . . . . . . . . . . . . $0.010
Second Quarter . . . . . . . . . . . . . . . 0.010
Third Quarter . . . . . . . . . . . . . . . . 0.010
Fourth Quarter . . . . . . . . . . . . . . . 0.025
1997
First Quarter . . . . . . . . . . . . . . . . $0.010
Second Quarter . . . . . . . . . . . . . . . 0.010
Third Quarter . . . . . . . . . . . . . . . . 0.010
Fourth Quarter . . . . . . . . . . . . . . . 0.025
</TABLE>
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors from time to time and paid out of funds
legally available therefor. Because the Company's consolidated net income
consists largely of net income of the Banks, the Company's ability to pay
dividends depends, in part, upon its receipt of dividends from the Banks. The
Banks' ability to pay dividends is regulated by banking statutes. See
"Supervision and Regulation--Dividend Limitations." The declaration of
dividends by the Company is discretionary and will depend on the Company's
earnings and financial condition, regulatory limitations, tax considerations,
and other factors including limitations imposed by the terms of the Company's
revolving lines of credit. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Liquidity." While the Board of
Directors expects to continue to declare dividends quarterly, there can be no
assurance that dividends will be paid in the future.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the indebtedness and capitalization of
the Company as of September 30, 1997, and as adjusted to reflect the issuance
and sale by the Company of 1,100,000 shares of Common Stock offered hereby at
an assumed initial public offering price of $13.00 per share and the
application of the estimated net proceeds as set forth under "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------
ACTUAL AS ADJUSTED
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
SHORT-TERM BORROWINGS:
Federal funds purchased and securities sold under agreements to
repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,270 $ 7,270
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000
Lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,696 8,797
-------- ---------
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . $ 33,966 $ 26,067
======== =========
LONG-TERM BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,225 $ 12,225
STOCKHOLDERS' EQUITY:
Common stock, par value $0.01 per share, 17,000,000 shares
authorized; 11,000,000 shares issued; 10,015,898 shares
outstanding; 11,115,898 shares outstanding as adjusted . . . . . . $ 110 $ 121
Capital surplus (1) . . . . . . . . . . . . . . . . . . . . . . . . . 13,834 26,722
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 40,909 40,909
Unrealized gain on securities . . . . . . . . . . . . . . . . . . . . 675 675
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . (4,537) (4,537)
-------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 50,991 63,890
-------- ---------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . $ 63,216 $ 76,115
======== =========
</TABLE>
- --------------
(1) Under the Company's 1996 Stock Option Plan, 500,000 shares of Common Stock
have been reserved for issuance. As of December 17, 1997, options to
purchase 111,000 shares of Common Stock were outstanding under the plan, of
which options for 15,500 shares were exercisable.
14
<PAGE> 16
DILUTION
The net tangible book value of the Company as of September 30, 1997 was
$48.5 million or $4.84 per share of Common Stock. "Net tangible book value" is
defined as the total stockholders' equity of the Company less intangible
assets. "Net tangible book value per share" is determined by dividing the net
tangible book value of the Company by the number of outstanding shares of
Common Stock.
After giving effect to the sale of the Common Stock offered hereby at an
assumed initial public offering price of $13.00 per share (after deducting the
underwriting discount and estimated offering expenses), the Company's pro forma
net tangible book value as of September 30, 1997 would have been $61.4 million
or $5.52 per share of Common Stock. This represents an immediate increase in
net tangible book value of $0.68 per share to the existing stockholders, and an
immediate dilution of $7.48 per share to investors who purchase shares of Common
Stock in the Offering. "Dilution" is the difference between the offering price
per share and the pro forma net tangible book value per share as adjusted for
the Offering.
The following table illustrates this per share dilution as of September
30, 1997, which is determined by subtracting the net tangible book value per
share after the Offering from the price paid by a new investor.
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share (1) . . . . . . . . . . $ 13.00
Net tangible book value per share as of September 30, 1997 . $ 4.84
Increase in net tangible book value per share attributable
to payments by new investors (2) . . . . . . . . . . . . . 0.68
------
Pro forma net tangible book value per share after Offering . . . 5.52
-------
Dilution of net tangible book value per share to new investors
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.48
=======
</TABLE>
- --------------
(1) Before deducting the underwriting discount and estimated offering expenses.
(2) After deducting the underwriting discount and estimated offering expenses.
(3) After giving effect to the exercise of outstanding options to purchase
111,000 shares of Common Stock, the pro forma net tangible book value per
share after the Offering would be $5.57 and the dilution of net tangible
book value per share to new investors would be $7.43.
The following table summarizes as of September 30, 1997, the number of
shares purchased from the Company, the total consideration paid and the average
price per share paid by: (i) the Directors, executive officers, and affiliated
persons of the Company who acquired such shares since December 31, 1992 and (ii)
investors in the Offering assuming an initial public offering price of $13.00
per share (before deducting the underwriting discount and estimated offering
expenses):
<TABLE>
<CAPTION>
NUMBER OF SHARES TOTAL AVERAGE PRICE
PURCHASED CONSIDERATION PER SHARE
-------------------- ------------- ---------------
<S> <C> <C> <C>
Directors, executive officers and affiliated persons . . . 115,318 $ 930,780 $ 8.07
New investors . . . . . . . . . . . . . . . . . . . . . . . 1,100,000 14,300,000 13.00
</TABLE>
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company. The selected statement of income and balance sheet data, insofar
as they relate to the five years in the five-year period ended December 31,
1996, have been derived from the Company's consolidated financial statements,
which for each such year have been audited by Crowe, Chizek and Company LLP,
independent certified public accountants. The selected financial data for the
nine-month periods ended September 30, 1997 and 1996 are derived from the
Company's unaudited interim financial statements. Such unaudited interim
financial statements include all adjustments (consisting only of normal,
recurring accruals) that the Company considers necessary for a fair presentation
of financial position and results of operation as of the dates and for the
periods indicated. Information for any interim period is not necessarily
indicative of results that may be anticipated for a full year. The following
information should also be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the Company's
audited Consolidated Financial Statements and Notes thereto, included elsewhere
herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total interest income . . . . . $ 49,663 $ 42,110 $ 57,298 $ 47,603 $ 36,406 $ 31,400 $ 27,186
Total interest expense . . . . 25,813 21,135 28,918 22,619 14,557 12,890 11,804
--------- --------- --------- --------- --------- --------- ---------
Net interest income . . . . . . 23,850 20,975 28,380 24,984 21,849 18,510 15,382
Provision for loan losses . . . 1,829 1,097 1,718 1,542 1,966 1,680 1,406
Other income (loss) . . . . . . 3,715 3,136 4,325 3,427 (253) 4,383 2,717
Other expenses . . . . . . . . 15,395 14,086 19,082 17,686 17,219 15,217 12,233
---------- --------- --------- --------- --------- --------- ---------
Income before income tax
expense . . . . . . . . . . 10,341 8,928 11,905 9,183 2,411 5,996 4,460
Income tax expense . . . . . . 4,063 3,378 4,597 3,151 509 1,989 1,503
---------- --------- --------- --------- --------- --------- ---------
Net income . . . . . . . . . . $ 6,278 $ 5,550 $ 7,308 $ 6,032 $ 1,902 $ 4,007 $ 2,957
========== ========= ========= ========= ========= ========= =========
PER SHARE DATA: (1)
Net income . . . . . . . . . . $ 0.63 $ 0.56 $ 0.73 $ 0.60 $ 0.19 $ 0.38 $ 0.28
Cash dividends declared . . . . 0.04 0.03 0.05 0.05 0.05 0.05 0.05
Book value at end of period . . 5.09 4.00 4.29 3.83 2.55 3.20 2.90
Tangible book value at end of
period . . . . . . . . . . 4.84 3.73 4.03 3.55 2.26 2.89 2.78
SELECTED FINANCIAL RATIOS: (2)
Return on average assets . . . 1.01% 1.03% 1.01% 1.02% 0.38% 0.89% 0.83%
Return on average equity . . . 18.79 20.01 19.36 18.65 6.24 12.33 10.05
Dividend payout ratio . . . . . 6.35 5.36 6.85 8.33 26.32 13.16 17.86
Average equity to average
assets . . . . . . . . . . 5.40 5.14 5.20 5.49 6.05 7.21 8.28
Net interest margin (tax
equivalent) . . . . . . . . 4.15 4.24 4.27 4.67 4.83 4.74 4.30
Allowance for loan losses to
total loans at the end of
period . . . . . . . . . . 1.28 1.29 1.27 1.28 1.31 1.23 1.09
Nonperforming loans to total
loans at the end of period
(3) . . . . . . . . . . . . 0.74 1.18 1.03 0.60 1.08 1.08 1.06
Net loans charged off
(recoveries) to average
total loans . . . . . . . . 0.22 0.16 0.26 0.28 0.46 0.50 0.56
Tier 1 risk-based capital . . . 9.34 9.14 9.57 7.64 9.27 8.94 10.81
Total risk-based capital . . . 10.52 10.32 10.76 8.66 10.44 9.92 11.71
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . $878,755 $757,353 $786,070 $660,315 $533,157 $468,395 $373,461
Total earning assets . . . . . 830,445 707,256 737,338 611,597 480,171 427,393 334,521
Total loans . . . . . . . . . . 485,235 394,193 420,655 359,639 304,242 268,360 221,016
Allowance for loan losses . . . 6,191 5,094 5,342 4,603 3,979 3,309 2,414
Total deposits . . . . . . . . 776,103 675,350 701,205 590,671 482,892 408,395 338,758
Borrowings . . . . . . . . . . 38,921 24,528 27,495 16,077 13,490 10,843 1,776
Shareholders' equity . . . . . 50,991 40,025 42,962 38,387 26,605 33,552 30,508
Tangible book value . . . . . 48,507 37,353 40,344 35,554 23,557 30,329 29,286
</TABLE>
- --------------
(1) All per share amounts have been adjusted to reflect two-for-one stock
splits effective on December 17, 1997, in April 1996 and in April 1992.
(2) Selected financial ratios for the nine months ended September 30, 1997 and
1996 are annualized.
(3) Includes total nonaccrual, impaired and all other loans 90 days past due.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis is intended as a review of
significant factors affecting the financial condition and results of operations
of the Company for the periods indicated. The discussion should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto and
the Selected Consolidated Financial Data presented herein. In addition to
historical information, the following Management's Discussion and Analysis of
Results of Operations and Financial Condition contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ significantly from those anticipated in these forward-looking
statements as a result of certain factors, including those discussed in "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company's principal business is conducted by the Banks and consists
of full service community-based financial services. The profitability of the
Company's operations depends primarily on its net interest income, provision for
loan losses, other income and other expenses. Net interest income is the
difference between the income the Company receives on its loan and investment
portfolios and its cost of funds, which consists of interest paid on deposits
and borrowings. The provision for loan losses reflects the cost of credit risk
in the Company's loan portfolio. Other income consists of service charges on
deposit accounts, securities gains, gains on sale of loans and fees and
commissions. Other expenses include salaries and employee benefits as well as
occupancy and equipment expenses, and other noninterest expenses.
Net interest income is dependent on the amounts and yields of
interest-earning assets as compared to the amounts of and rates on interest-
bearing liabilities. Net interest income is sensitive to changes in market
rates of interest and the Company's asset/liability management procedures in
coping with such changes. The provision for loan losses is dependent on
increases in the loan portfolio and management's assessment of the
collectibility of the loan portfolio under current economic conditions. Other
expenses are heavily influenced by the growth of operations, with additional
employees necessary to staff and open new banking centers and marketing expenses
necessary to promote them. Growth in the number of account relationships
directly affects such expenses as data processing costs, supplies, postage and
other miscellaneous expenses.
The Company has achieved significant profitable growth within its
markets since 1992. In each of the last four years, the Company has generated
high double-digit growth rates in earning assets and total deposits. The
Company has also sustained record levels of net income for each of the last four
years, with the exception of 1994. In 1994, net income was negatively impacted
by losses realized by the Company upon the mark-to-market adjustment of certain
securities in the Company's trading account. Growth rates for the nine months
ended September 30, 1997 and the year ended December 31, 1996, and the average
annual rate for the four-year period 1992-1996, are included below for total
assets, earning assets, total deposits and net income:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED AVERAGE ANNUAL RATE
SEPTEMBER 30, 1997 DECEMBER 31, 1996 1992-1996
------------------ ----------------- -------------------
<S> <C> <C> <C>
Total assets . . . . . 16.0% 19.0% 27.6%
Earning assets . . . . 16.2% 20.2% 29.4%
Total deposits . . . . 14.9% 18.7% 26.7%
Net income . . . . . . 13.1% 21.2% 36.8%
</TABLE>
The increase in total assets, earning assets and total deposits over the
four-year period 1992-1996 was due primarily to growth both in existing markets
and in new markets as a result of the opening of new banking centers and, to a
lesser extent, bank acquisitions. The Company believes that its recent growth
is a result of its strategy to become a low-cost provider of premium rate
deposits and competitively priced loan products within its core markets.
17
<PAGE> 19
CONSOLIDATED RESULTS OF OPERATIONS
During the first nine months of 1997, total assets increased $92.7
million or 11.8% to $878.8 million as of September 30, 1997 from $786.1 million
as of December 31, 1996. Net income for the nine months ended September 30,
1997 was $6.3 million or 13.1% higher than the net income of $5.6 million for
the nine months ended September 30, 1996. The annualized return on average
assets for the nine months ended September 30, 1997 was 1.01% with an annualized
return on average equity of 18.79%. These annualized returns were slightly
lower than the annualized return on average assets of 1.03% and the annualized
return on average equity of 20.01% for the nine months ended September 30, 1996.
Total assets increased $125.8 million or 19.0% to $786.1 million as of
December 31, 1996 from $660.3 million as of December 31, 1995. Net income
increased $1.3 million or 21.2% to $7.3 million for the year ended December 31,
1996 compared to the year ended December 31, 1995. The return on average assets
was 1.01% and the return on average equity was 19.36% during 1996. Net income
was $6.0 million for the year ended December 31, 1995, with a return on average
assets of 1.02% and a return on average equity of 18.65% during the period.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net Interest Income. Net interest income on a tax-equivalent basis
increased $2.9 million or 13.7% to $24.3 million for the nine months ended
September 30, 1997 from $21.3 million for the nine months ended September 30,
1996. Interest income on total earning assets increased $7.6 million for the
nine months ended September 30, 1997 as compared to the nine months ended
September 30, 1996. Interest income on loans increased $5.4 million for the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 1996 due to a $78.8 million increase in average loans outstanding and a
decrease in average loan rates from 9.62% to 9.54%. Interest expense on
interest-bearing liabilities increased $4.7 million for the nine months ended
September 30, 1997 compared to the nine months ended September 30, 1996, as a
result of a $4.3 million increase in interest expense on deposits and a $338,000
increase in interest expense on other borrowings. The increase in interest
expense was due primarily to a combination of a $95.7 million increase in
average deposits and an increase in the average rate paid on deposits to 4.93%
from 4.74%. The net interest margin on a tax equivalent basis decreased slightly
to 4.15% for the nine months ended September 30, 1997 from 4.24% for the
comparable nine-month period in 1996.
Other Income. The Company's total other income for the nine months
ended September 30, 1997 increased $579,000 or 18.5% to $3.7 million from $3.1
million for the nine months ended September 30, 1996. Other income as a
percentage of average assets was 0.60% annualized for the nine months ended
September 30, 1997 compared to 0.58% annualized for the nine months ended
September 1996. The $579,000 increase in total other income for the nine months
ended September 30, 1997 over the nine months ended September 30, 1996 is
primarily due to a $265,000 increase in service charges on deposit accounts due
to increased volume and pricing, a $243,000 increase in gains from securities
transactions offset by a decrease of $46,000 in net trading account profits, and
an $85,000 increase in mortgage origination fees.
Other Expenses. The Company's total other expenses increased $1.3
million or 9.2% to $15.4 million for the nine months ended September 30, 1997
from $14.1 million for the nine months ended September 30, 1996. Other expenses
were 2.49% and 2.61% of average assets for the nine months ended September 30,
1997 and 1996, respectively. Net overhead expenses (other expenses minus other
income) were 1.89% and 2.03% of average assets for the nine months ended
September 30, 1997 and 1996, respectively. The increase in total other expenses
for the nine months ended September 30, 1997 is primarily due to the following
factors. Salaries increased $757,000 for the nine months ended September 30,
1997 compared to the nine months ended September 30, 1996 due to additional
staffing to support new banking centers in Northwest Chicago, Downers Grove and
Galesburg. Other expenses also rose $552,000 as a result of increases in legal
costs related to loan collection and workout activities, occupancy and equipment
expense due to depreciation for new banking centers, telephone costs to support
new banking centers, employee training expenses and general increases in other
categories.
18
<PAGE> 20
Federal and State Income Tax. The Company's consolidated income tax
rate varies from statutory rates principally due to interest income from
tax-exempt securities and loans. The provision for income taxes at an assumed
rate of 38.7% was $4.1 million for the nine months ended September 30, 1997
compared to $3.4 million for the nine months ended September 30, 1996. The
increase in the provision for the nine months ended September 30, 1997 was due
to changes in income.
1996 COMPARED TO 1995
Net Interest Income. Net interest income on a tax-equivalent basis
increased $3.5 million or 13.6% to $28.9 million in 1996 from $25.4 million in
1995. Interest income on total earning assets increased $9.8 million in 1996
from 1995. Interest income on loans increased $3.8 million in 1996 from 1995
due to a $52.3 million increase in average loans outstanding while average loan
rates decreased from 9.98% to 9.60%. The most significant portion of the
increase in interest income was due to an $83.8 million increase in securities
and an improvement in average yields to 7.19% in 1996 from 7.10% in 1995.
Interest expense on interest-bearing liabilities increased $6.3 million in 1996
from 1995 as a result of a $5.9 million increase in interest expense on deposits
and a $414,000 increase in interest expense on other borrowings. The increase
in interest expense on deposits was due to a combination of a $116.4 million
increase in average deposits and an increase in the average rate paid to 4.70%
from 4.61%. The increase in the average rate on deposits was due to the
increasing market rates experienced over the period plus premium rate
certificate of deposit promotions to introduce the Company's new banking centers
in Northwest Chicago, Downers Grove and Galesburg. The $414,000 increase in
interest expense on other borrowings from 1995 to 1996 is attributable to an
increase of $8.1 million for a combination of fed funds purchased, Federal Home
Loan Bank (FHLB) advances and bank borrowings to fund loan and investment
portfolio growth. The average rate on other borrowings was 6.29% in 1996
compared to 6.65% in 1995. Net interest margin decreased 0.40% to 4.27% in 1996
from 4.67% in 1995 as a result of the above factors.
Other Income. The Company's total other income increased $898,000 or
26.2% to $4.3 million in 1996 from $3.4 million in 1995. Other income as a
percentage of average assets was 0.60% for the year ended 1996 compared to 0.58%
for the year ended 1995. The $898,000 increase in 1996 from 1995 is primarily
attributable to a $303,000 increase in service charges on deposit accounts, a
$927,000 increase in gains on securities transactions, a $373,000 decrease in
net trading account profits, a $101,000 increase in trust service fees and a
$108,000 decrease in mortgage origination fees.
Other Expenses. The Company's total other expenses increased $1.4
million to $19.1 million in 1996 from $17.7 million in 1995. Other expenses as
a percentage of average assets were 2.63% for the year ended 1996 compared to
3.00% for the year ended 1995. Net overhead expenses were 2.03% and 2.42% as a
percentage of average assets in 1996 and 1995, respectively. The increase of
$1.4 million in total other expenses in 1996 from 1995 was attributable to
increases in salaries and employee benefits, occupancy costs, and marketing and
promotion expenses related to new banking centers, offset in part by a $541,000
decrease in FDIC insurance premiums.
Federal and State Income Tax. The Company recorded income tax expense
of $4.6 million in 1996, compared to $3.2 million in 1995, reflecting changes in
income and payments for state taxes resulting from the settlement of a dispute
without penalty with the Illinois Department of Revenue concerning income on
certain securities.
1995 COMPARED TO 1994
Net Interest Income. Net interest income on a tax-equivalent basis in
1995 increased $3.2 million or 14.4% in 1995 from $22.2 million in 1994.
Interest income on total earning assets increased $11.3 million in 1995 from
1994. Interest income on loans increased $7.3 million in 1995 from 1994
primarily due to a combination of a $44.4 million increase in loans and an
increase in the average yield to 9.98% from 8.99%. Interest income on
investment securities increased $3.7 million in 1995 from 1994 with an increase
in average yield to 7.10% from 6.40%. Interest expense on interest-bearing
deposits increased $7.7 million in 1995 from 1994 due to growth of $77.2 million
in deposits and an increase in the average rate paid to 4.61% from 3.51%.
Interest on securities sold under agreements to repurchase and funds purchased
increased $74,000 due to an increase in average rates to 5.86% in 1995 from
4.05% in 1994, offset in part by a $2.3 million decrease in the average
balance. Interest expense on short-term bank borrowings increased
19
<PAGE> 21
$287,000 in 1995 from 1994 attributable to an increase of $3.9 million in the
average balance of those borrowings. Net interest margin decreased 0.16% to
4.67% in 1995 from 4.83% in 1994 as a result of the above factors.
Other Income. The Company's total other income increased $3.7 million
to $3.2 million in 1995 from a negative $253,000 in 1994. Other income as a
percentage of average assets was 0.58% for the year ended 1995 compared to
(0.05)% for the year ended 1994. The $3.7 million increase in 1995 compared to
1994 is primarily attributable to a $132,000 increase in losses on securities
transactions, a $3.4 million increase in net trading account profits and a
$382,000 increase in mortgage origination fees. Other income in 1994 was
negatively impacted by losses realized by the Company upon the mark-to-market
adjustment of certain securities held in the Company's trading account.
Other Expenses. The Company's total other expenses increased $467,000
to $17.6 million in 1995 from $17.2 million in 1994. Other expenses as a
percentage of average assets were 3.00% for the year ended 1995 compared to
3.42% for the year ended 1994. Net overhead expenses were 2.42% and 3.47% as a
percent of average assets in 1995 and 1994, respectively. The $467,000
increase in total other expenses in 1995 compared to 1994 was attributable to
increased staffing and occupancy costs due to banking center expansion and the
establishment of two new subsidiaries (Midwest One Mortgage Services, Inc. and
Midwest Trust Services, Inc.), offset in part by a reduction in FDIC insurance
fees.
Federal and State Income Tax. The Company recorded income tax expenses
of $3.2 million in 1995 compared to $509,000 in 1994 due to increased income.
INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following table sets forth the average balances, net interest income
and expense and average yields and rates for the Company's interest-earning
assets and interest-bearing liabilities for the indicated periods on a
tax-equivalent basis assuming a 34% tax rate.
20
<PAGE> 22
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1997 1996
--------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE (2) BALANCE INTEREST RATE (2)
---------- ----------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold . . . . . . . . . $ 3,950 $ 163 5.50% $ 2,754 $ 111 5.37%
Securities:
Taxable . . . . . . . . . . . . . 302,098 16,387 7.23 274,997 14,379 6.97
Exempt from federal income
taxes (1) . . . . . . . . . . . 21,147 1,164 7.34 19,704 1,055 7.14
---------- -------- ---------- ---------
Total securities . . . . . . . 323,245 17,551 7.24 294,701 15,434 6.98
---------- -------- ---------- ---------
Loans:
Commercial loans . . . . . . . . 126,452 8,858 9.34 109,939 7,764 9.42
Commercial real estate loans . . 201,927 14,947 9.87 145,372 10,852 9.95
Agricultural loans . . . . . . . 18,681 1,256 8.96 17,987 1,242 9.21
Consumer real estate loans . . . 85,600 5,738 8.94 78,458 5,414 9.20
Consumer installment loans . . . 19,303 1,546 10.68 21,449 1,652 10.27
---------- -------- ---------- ---------
Total loans . . . . . . . . . . 451,963 32,345 9.54 373,205 26,924 9.62
---------- -------- ---------- ---------
Total interest-earning
assets . . . . . . . . . . $ 779,158 $ 50,059 8.57 $670,660 $ 42,469 8.44
========== ======== ======== =========
INTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand deposits . $ 68,334 $ 1,521 2.97 $ 62,673 $ 1,254 2.67
Money market demand
accounts/savings accounts . . . 182,378 5,225 3.82 182,274 5,144 3.76
Time deposits of less than
$100,000 . . . . . . . . . . . 317,995 13,932 5.84 253,932 11,034 5.79
Time deposits of $100,000 or more 46,464 1,967 5.64 32,705 1,381 5.63
Public funds . . . . . . . . . . 29,317 1,194 5.43 17,239 686 5.31
---------- -------- ---------- ---------
Total deposits . . . . . . . . 644,488 23,839 4.93 548,823 19,499 4.74
---------- -------- ---------- ---------
Borrowings:
Federal funds and repurchase
agreements . . . . . . . . . . 9,617 408 5.66 18,236 753 5.51
FHLB advances . . . . . . . . . . 16,861 731 5.78 1,134 59 6.94
Notes and mortgages . . . . . . . 15,977 835 6.97 16,321 824 6.73
---------- -------- ---------- ---------
Total borrowings . . . . . . . 42,455 1,974 6.20 35,691 1,636 6.11
---------- -------- ---------- ---------
Total interest-bearing
liabilities . . . . . . . $686,943 $25,813 5.01 $ 584,514 $ 21,135 4.82
======== ======= ========== =========
Net interest income (tax
equivalent) . . . . . . . . . . . $24,246 $ 21,334
======= =========
Net interest margin . . . . . . . . 4.15% 4.24%
</TABLE>
- ------------------
(1) Adjusted for 34% tax rate.
(2) Annualized.
21
<PAGE> 23
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- -------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- -------- -------- -------- -------- ------- -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold . . . . . . $ 3,242 $ 177 5.46% $ 6,747 $ 400 5.93% $ 3,279 $ 140 4.27%
Securities:
Taxable . . . . . . . . . . 271,878 19,575 7.20 189,555 13,535 7.14 158,891 9,998 6.29
Exempt from federal
income taxes (1) . . . . 20,078 1,423 7.09 18,642 1,238 6.64 13,223 1,036 7.84
-------- ------- -------- ------- -------- --------
Total securities . . . . 291,956 20,998 7.19 208,197 14,773 7.10 172,114 11,034 6.41
-------- ------- -------- ------- -------- --------
Loans:
Commercial loans . . . . . 109,907 10,331 9.40 97,608 9,985 10.23 79,583 6,715 8.44
Commercial real estate
loans . . . . . . . . . . 152,714 15,183 9.94 132,131 13,402 10.14 119,189 11,130 9.34
Agricultural loans . . . . 18,695 1,712 9.16 14,578 1,388 9.52 14,824 1,368 9.23
Consumer real estate loans . 78,602 7,189 9.15 67,383 6,337 9.40 53,459 4,707 8.80
Consumer installment loans . 21,345 2,192 10.27 17,332 1,739 10.03 17,603 1,663 9.45
-------- ------- -------- ------- -------- --------
Total loans . . . . . . 381,263 36,607 9.60 329,032 32,851 9.98 284,658 25,583 8.99
-------- ------- -------- ------- -------- --------
Total interest-earning
assets . . . . . . $676,461 $57,782 8.54 $543,976 $48,024 8.83 $460,051 $ 36,757 7.99
======== ======= ======== ======= ======== ========
INTEREST-BEARING
LIABILITIES:
Deposits:
Interest-bearing demand
deposits . . . . . . . . $ 63,169 $ 1,720 2.72 $ 53,699 $ 1,428 2.66 $ 48,106 $ 1,065 2.21
Money-market demand
accounts/savings accounts.. 183,005 6,910 3.78 164,284 6,433 3.92 163,077 4,655 2.85
Time deposits of less than
$100,000 . . . . . . . . 269,538 15,162 5.63 195,848 10,736 5.48 129,152 5,932 4.59
Time deposits of $100,000
or more . . . . . . . . . 35,454 2,009 5.67 28,095 1,649 5.87 23,328 1,032 4.42
Public funds . . . . . . . 18,663 995 5.33 11,530 665 5.77 12,630 526 4.16
-------- ------- -------- ------- -------- --------
Total deposits . . . . . 569,829 26,796 4.70 453,456 20,911 4.61 376,293 13,210 3.51
-------- ------- -------- ------- -------- --------
Borrowings:
Federal funds and
repurchase agreements . . 14,912 820 5.50 9,931 571 5.75 12,262 497 4.05
FHLB advances . . . . . . . 3,378 211 6.25 -- -- 0.00 -- -- 0.00
Notes and mortgages . . . . 15,439 1,091 7.07 15,741 1,137 7.22 11,827 850 7.19
-------- ------- -------- ------- -------- --------
Total borrowings . . . . 33,729 2,122 6.29 25,672 1,708 6.65 24,089 1,347 5.60
-------- ------- -------- ------- -------- --------
Total interest-bearing
liabilities . . . $603,558 $28,918 4.79 $479,128 $22,619 4.72 $400,382 $ 14,557 3.64
======== ======= ======== ======= ======== ========
Net interest income (tax
equivalent) . . . . . . . $28,864 $25,405 $ 22,200
======= ======= ========
Net interest margin . . . . 4.27% 4.67% 4.83%
</TABLE>
- --------------------
(1) Adjusted for 34% tax rate.
CHANGES IN INTEREST INCOME AND EXPENSE
The changes in net interest income from period to period are reflective
of changes in the rate environment, changes in the composition of assets and
liabilities as to type and maturity (and the inherent rate differences related
thereto), and volume changes. The Company's emphasis on conservative
underwriting and quality commercial loans--resulting in higher levels of
investments in securities which generally bear lower interest rates than
loans--has also had an impact on net interest income. Later sections of this
discussion and analysis address the changes in maturity composition of loans and
investments, and in the asset and liability repricing gaps associated with
interest rate risk, all of which contribute to changes in net interest margin.
The following table sets forth an analysis of volume and rate changes in
interest income and interest expense of the Company's average interest-earning
assets and average interest-bearing liabilities for the indicated periods on a
tax-equivalent basis assuming a 34% tax rate. The table distinguishes between
the changes related to average outstanding balances (changes in volume holding
the initial interest rate constant) and the changes related to average interest
rates (changes in average rate holding the initial outstanding balance
constant). The change in interest due to both volume and rate has been
allocated to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
22
<PAGE> 24
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1997 COMPARED TO 1996
--------------------------------
CHANGE DUE TO
-------------
NET VOLUME RATE
---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52 $ 49 $ 3
Securities taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,008 1,455 553
Securities exempt from federal income taxes . . . . . . . . . . . . . . . . . . 109 79 30
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,094 1,157 (63)
Commercial real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . 4,095 4,187 (92)
Agricultural loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 47 (33)
Consumer real estate loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 482 (158)
Consumer installment loans . . . . . . . . . . . . . . . . . . . . . . . . . . . (106) (170) 64
-------- -------- ---------
Total interest-earning assets . . . . . . . . . . . . . . . . . . . . . $ 7,590 $ 7,286 $ 304
======== ======== =========
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits . . . . . . . . . . . . . . . . . . . . . . . . $ 267 $ 119 $ 148
Money market demand accounts/savings accounts . . . . . . . . . . . . . . . . . 81 3 78
Time deposits of less than $100,000 . . . . . . . . . . . . . . . . . . . . . . 2,898 2,806 92
Time deposits of $100,000 or more . . . . . . . . . . . . . . . . . . . . . . . 586 582 4
Public funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508 492 16
Federal funds and repurchase agreements . . . . . . . . . . . . . . . . . . . . (345) (365) 20
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672 683 (11)
Notes and mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (18) 29
-------- -------- ---------
Total interest-bearing liabilities . . . . . . . . . . . . . . . . . . . $ 4,678 $ 4,302 $ 376
======== ======== =========
Net interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,912 $ 2,984 $ (72)
======== ======== =========
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1996 COMPARED TO 1995 1995 COMPARED TO 1994
------------------------------ ------------------------------
CHANGE DUE TO CHANGE DUE TO
------------- -------------
NET VOLUME RATE NET VOLUME RATE
--------- ---------- --------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold . . . . . . . . . . . . . $ (223) $ (194) $ (29) $ 260 $ 190 $ 70
Securities taxable . . . . . . . . . . . . . 6,040 5,926 114 3,537 2,083 1,454
Securities exempt from federal income
taxes . . . . . . . . . . . . . . . . . . 185 99 86 202 377 (175)
Commercial loans . . . . . . . . . . . . . . 346 1,196 (850) 3,270 1,688 1,582
Commercial real estate loans . . . . . . . . 1,781 2,051 (270) 2,272 1,267 1,005
Agricultural loans . . . . . . . . . . . . . 324 379 (55) 20 (23) 43
Consumer real estate loans . . . . . . . . . 852 1,030 (178) 1,630 1,292 338
Consumer installment loans . . . . . . . . . 453 411 42 76 (26) 102
------ -------- ------- ------- ------- --------
Total interest-earning assets . . . . . . $9,758 $ 10,898 $(1,140) $11,267 $ 6,848 $ 4,419
====== ======== ======= ======= ======= ========
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits . . . . . . $ 292 $ 257 $ 35 $ 363 $ 133 $ 230
Money market demand accounts/savings
accounts . . . . . . . . . . . . . . . . 477 713 (236) 1,778 35 1,743
Time deposits of less than
$100,000 . . . . . . . . . . . . . . . . 4,426 4,138 288 4,804 3,495 1,309
Time deposits of $100,000 or
more . . . . . . . . . . . . . . . . . . 360 419 (59) 617 237 380
Public funds . . . . . . . . . . . . . . . . 330 384 (54) 139 (49) 188
Federal funds and repurchase
agreements . . . . . . . . . . . . . . . 249 275 (26) 74 (107) 181
FHLB advances . . . . . . . . . . . . . . . 211 211 -- -- -- --
Notes and mortgages . . . . . . . . . . . . (46) (22) (24) 287 283 4
------ -------- ------- ------- ------- --------
Total interest-bearing liabilities . . . $6,299 $ 6,375 $ (76) $ 8,062 $ 4,027 $ 4,035
====== ======== ======= ======= ======= ========
Net interest . . . . . . . . . . . . . . . . $3,459 $ 4,523 $(1,064) $ 3,205 $ 2,821 $ 384
====== ======== ======= ======= ======= ========
</TABLE>
OTHER INCOME AND EXPENSES
The following table sets forth the Company's other income for the
indicated periods.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ---------------------------------
1997 1996 1996 1995 1994
----------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Other Income:
Service charges on deposit accounts . . . . . . . $2,045 $1,780 $2,440 $2,137 $ 1,960
Gains (losses) on security
transactions . . . . . . . . . . . . . . . . . . 239 (4) 181 (746) (614)
Net trading account profits . . . . . . . . . . . 114 160 174 547 (2,877)
Mortgage loan origination fees . . . . . . . . . . 403 318 363 471 89
Trust income . . . . . . . . . . . . . . . . . . . 425 414 525 424 487
Other income . . . . . . . . . . . . . . . . . . . 489 468 642 594 702
------ ------ ------ ------ -------
Total other income . . . . . . . . . . . . . . . $3,715 $3,136 $4,325 $3,427 $ (253)
====== ====== ====== ====== =======
</TABLE>
24
<PAGE> 26
The following table sets forth the Company's other expenses for the indicated
periods.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------- ---------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Other Expenses:
Salaries and employee benefits . . . . . . . . . . . . . . $ 9,082 $ 8,325 $11,180 $ 9,961 $ 9,349
Occupancy and equipment expense . . . . . . . . . . . . . . 2,379 2,232 3,151 2,957 2,747
Professional services . . . . . . . . . . . . . . . . . . . 841 652 866 316 547
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . 530 535 639 580 524
Office supplies . . . . . . . . . . . . . . . . . . . . . . 382 453 474 408 386
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . 63 6 8 549 941
Postage and freight . . . . . . . . . . . . . . . . . . . . 429 400 515 451 411
Other expenses . . . . . . . . . . . . . . . . . . . . . . 1,689 1,483 2,249 2,464 2,314
------- -------- ------- -------- --------
Total other expenses . . . . . . . . . . . . . . . . . . $15,395 $ 14,086 $19,082 $ 17,686 $ 17,219
======= ======== ======= ======== ========
</TABLE>
FINANCIAL CONDITION
Loans
The Company's loan portfolio largely reflects the profile of the
communities in which it operates. The following table sets forth the
composition of the Company's loan portfolio as of the indicated dates.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- --------- --------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . $135,122 $118,471 $107,590 $ 84,421 $ 78,296 $ 64,673
Commercial real estate . . . . . . . . 221,400 180,499 144,346 127,117 96,405 81,383
Agricultural . . . . . . . . . . . . . . 21,247 20,079 15,875 15,404 13,061 1,050
Consumer real estate . . . . . . . . . . 89,828 81,006 73,336 61,013 66,007 61,563
Consumer installment . . . . . . . . . . 18,899 21,567 20,051 17,441 15,405 12,792
-------- --------- --------- --------- -------- ---------
Total loans, gross . . . . . . . . . . 486,496 421,622 361,198 305,396 269,174 221,461
Unearned discount . . . . . . . . . . . (1,261) (967) (1,559) (1,154) (814) (445)
-------- --------- --------- --------- -------- ---------
Total loans . . . . . . . . . . . . . 485,235 420,655 359,639 304,242 268,360 221,016
Allowance for loan losses . . . . . . . (6,191) (5,342) (4,603) (3,979) (3,309) (2,414)
-------- -------- -------- --------- -------- ---------
Net loans . . . . . . . . . . . . . . $479,044 $415,313 $355,036 $ 300,263 $265,051 $ 218,602
======== ======== ======== ========= ======== =========
Loans held for sale:
Consumer real estate . . . . . . . . . $ 4,179 $ 1,555 $ 1,137 $ 290 -- --
</TABLE>
Total loans increased $64.6 million to $485.2 million as of September
30, 1997 from $420.7 million as of December 31, 1996. Total loans increased
$61.0 million to $420.7 million as of December 31, 1996 from $359.6 million as
of December 31, 1995. Total loans increased $55.4 million to $359.6 million as
of December 31, 1995 from $304.2 million as of December 31, 1994. The increase
in total loans in each year was principally due to increased commercial,
commercial real estate loans and consumer real estate loans.
Commercial loans increased $16.7 million to $135.1 million as of
September 30, 1997 from $118.5 million as of December 31, 1996. Commercial
loans increased $10.9 million to $118.5 million as of December 31, 1996 from
$107.6 million as of December 31, 1995. Commercial loans increased $23.2
million to $107.6 million as of December 31, 1995 from $84.4 million in 1994.
The increases during these periods reflect increased demand due to a stronger
economy, increased working capital and equipment requirements by existing
borrowers and new customer relationships.
25
<PAGE> 27
Commercial real estate loans increased $40.9 million to $221.4 million
as of September 30, 1997 from $180.5 million as of December 31, 1996.
Commercial real estate loans increased $36.2 million as of December 31, 1996
from $144.3 million as of December 31, 1995. As of December 31, 1995,
commercial real estate loans increased $17.2 million from December 31, 1994.
This increase in commercial real estate loans reflects the stronger economy, the
overall improvement in the commercial real estate market, increased commitments
with existing borrowers and the initial market penetration and market share
growth of new banking centers.
Agricultural loans increased $1.1 million to $21.2 million as of
September 30, 1997 from $20.1 million as of December 31, 1996. Agricultural
loans increased $4.2 million as of December 31, 1996 from $15.9 million as of
December 31, 1995. As of December 31, 1995, agricultural loans increased by
$471,000 to $15.9 million from $15.4 million as of December 31, 1994. These
increases in agricultural loans reflect increased market share in West Central
Illinois.
Consumer real estate loans increased $8.8 million to $89.8 million as of
September 30, 1997 from $81.0 million as of December 31, 1996. Consumer real
estate loans increased $7.7 million to $81.0 million as of December 31, 1996
from $73.3 million as of December 31, 1995. The Company originates medium-term
fixed-rate and adjustable rate residential loans for its own portfolio. Most
long-term fixed-rate residential loan requests are referred to Midwest One
Mortgage Services, Inc. for sale into the secondary market, with servicing
rights released. A small percentage of long-term fixed-rate consumer real
estate loans are held by the Banks. See "Business--Products and Services." The
increase in consumer real estate loans has been limited since 1994, and
represented a decreasing percentage of total loans. Consumer real estate loans
were 19.2%, 20.3%, and 20.0% of total loans as of December 31, 1996, 1995 and
1994, respectively. As of September 30, 1997, consumer real estate loans
represented 18.5% of total loans.
Consumer installment loans decreased $2.7 million to $18.9 million as of
September 30, 1997 from $21.6 million as of December 31, 1996. Consumer loans
increased $1.5 million and $2.6 million in 1996 and 1995 respectively. The
decrease in 1997 was due to the runoff of other installment loans, including
indirect auto loans by The National Bank of Monmouth. Management discontinued
indirect auto loan programs beginning in 1993, and the Company presently only
considers auto loans originated by a dealer if the borrower is a customer of one
of the Banks. As of September 30, 1997 and December 31, 1996, the Company's
consumer loan portfolio included $18.9 million and $13.5 million, respectively,
of indirect auto loans.
Although the risk of nonpayment for any reason exists with respect to
all loans, certain other more specific risks are associated with each type of
loan. The primary risks associated with commercial loans are quality of the
borrower's management and the impact of local economic factors. Risks
associated with real estate loans include concentrations of loans in a loan type
such as commercial or residential and fluctuating land values. Consumer loans
also have risks associated with concentrations of loans in a single type of
loan. Consumer loans additionally face the risk of a borrower's unemployment as
a result of deteriorating economic conditions.
The Company attempts to balance the types of loans in its portfolio with
the objective of reducing risk. While the Company has a sizable portion of its
loan portfolio secured by real estate in one form or another, a significant
portion of those loans have fixed or adjustable or floating interest rates. The
Company believes that its philosophy in extending credit is conservative in
nature, with a presumption that most credit should have both a primary and a
secondary source of repayment, and that the primary source should generally be
supported by operating cash flows, while the secondary source should generally
be disposition of collateral. The Company engages in very little unsecured
lending, and generally requires personal guarantees of principals for business
obligations. The Company practices a system of concurrence in the approval of
commercial credit whereby the documented concurrence of an officer's credit
committee (or approval by the board or a board committee, where applicable) is
obtained in addition to that of the recommending officer. This system is
intended to assure that commercial credit is subjected to the independent
objective on at least two different levels.
26
<PAGE> 28
Loan Maturities
The following table sets forth the remaining maturities, based upon
contractual dates, for selected loan categories as of September 30, 1997.
<TABLE>
<CAPTION>
ONE YEAR 1-5 YEARS OVER 5 YEARS
----------------------- ------------------------
OR LESS FIXED VARIABLE FIXED VARIABLE TOTAL
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . $ 95,522 $ 10,998 $ 25,270 $ 1,518 $ 1,814 $ 135,122
Commercial real estate . . . . . . 104,680 69,506 35,849 4,613 6,752 221,400
Agricultural . . . . . . . . . . . 9,093 1,646 3,431 2,930 4,147 21,247
Consumer real estate . . . . . . . 23,145 32,480 15,049 12,459 6,695 89,828
Consumer installment . . . . . . . 6,709 11,183 -- 1,007 -- 18,899
--------- --------- --------- -------- -------- ----------
Total loans, gross . . . . . . 239,149 125,813 79,599 22,527 19,408 486,496
Unearned discount . . . . . . . . (1,261) -- -- -- -- (1,261)
--------- --------- --------- -------- -------- ----------
Total loans . . . . . . . . . . $ 237,888 $ 125,813 $ 79,599 $ 22,527 $ 19,408 $ 485,235
========= ========= ========= ======== ======== ==========
</TABLE>
Nonperforming Loans
The Company discontinues the accrual of interest income on any loan
when, in the opinion of management, there is reasonable doubt as to the timely
collectibility of interest or principal. On a case-by-case basis, the Company
discontinues the accrual of interest on a loan once it becomes 90 days past
due. All accrued and uncollected interest is charged against income at the
time a loan is placed on nonaccrual status. Nonaccrual loans are returned to
an accrual status when, in the opinion of management, the financial position of
the borrower indicates that there is no longer any reasonable doubt as to the
timely payment of principal and interest. There are no potential problem loans
as to which management has serious doubts as to collectibility that are not
included in the following table.
The following table sets forth information on the Company's
nonperforming loans and other assets as of the indicated dates.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual and impaired loans
not accruing . . . . . . . . $ 1,668 $ 2,375 $ 1,138 $ 2,441 $ 2,071 $ 1,262
Impaired and other loans 90
days past due and
accruing . . . . . . . . . . 1,925 1,972 1,015 835 827 1,079
--------- --------- --------- -------- -------- ----------
Total nonperforming loans . . 3,593 4,347 2,153 3,276 2,898 2,341
Other real estate . . . . . . . 774 925 937 807 1,395 620
--------- --------- ---------- -------- -------- ----------
Total nonperforming assets . $ 4,367 $ 5,272 $3,090 $ 4,083 $ 4,293 $ 2,961
========= ========= ======== ======== ======== ==========
Total nonperforming loans to
total loans . . . . . . . . . 0.74% 1.03% 0.60% 1.08% 1.08% 1.06%
Total nonperforming assets to
total loans and other real
estate . . . . . . . . . . . 0.90 1.25 0.86 1.34 1.59 1.34
Total nonperforming assets to
total assets . . . . . . . . 0.50 0.67 0.47 0.77 0.92 0.79
</TABLE>
27
<PAGE> 29
For the nine months ended September 30, 1997, gross interest income that
would have been recorded if the nonaccrual loans had been current in accordance
with their original terms and had been outstanding throughout the period was
approximately $156,000. During the nine months ended September 30, 1997, the
Company recognized interest income on such nonaccrual loans of $152,000.
Nonperforming assets have decreased as a percentage of total assets
during the past five years. Nonperforming assets were 0.50% of total assets as
of September 30, 1997 compared to 0.67% of total assets as of December 31, 1996
and 0.79% as of December 31, 1992. Despite the significant growth in loans
during the period, management believes that the improvement in the level of
nonperforming assets is due to the Company's conservative lending philosophy and
increased collection efforts, along with improved economic conditions.
Analysis of Allowance for Loan Losses
An allowance for loan losses has been established to provide for those
loans that may not be repaid in their entirety. The allowance for loan losses
is maintained at a level considered by management to be adequate to provide for
potential loan losses. The allowance is increased by provisions charged to
earnings and is reduced by charge-offs, net of recoveries. The provision for
loan losses is based on past loan loss experience and management's evaluation of
the loan portfolio under current economic conditions. Loans are charged to the
allowance for loan losses when, and to the extent, they are deemed by management
to be uncollectible. The allowance for loan losses is composed of specific
allocations for impaired loans and an unallocated portion for all other loans.
28
<PAGE> 30
The following table sets forth loans charged off and recovered by type
of loan and an analysis of the allowance for loan losses for the indicated
periods.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER FOR THE YEARS ENDED DECEMBER 31,
30, -----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Average total loans . . . . . $ 451,963 $ 381,263 $ 329,032 $ 284,658 $ 262,318 $ 212,827
========== ========== ========== ========== ========== ==========
Total loans at end of period $ 485,235 $ 420,655 $ 359,639 $ 304,242 $ 268,360 $ 221,016
========== ========== ========== ========== ========== ==========
Total nonperforming and
impaired loans . . . . . . $ 3,593 $ 4,347 $ 2,153 $ 3,276 $ 2,898 $ 2,341
========== ========== ========== ========== ========= ==========
Allowance at beginning of
year . . . . . . . . . . . 5,342 4,603 3,979 3,309 2,414 2,193
Allowance for acquired bank . -- -- -- -- 521 --
Charge-offs:
Commercial loans . . . . . 961 950 633 1,235 1,299 1,374
Consumer real estate
loans . . . . . . . . . 19 19 15 71 229 77
Commercial real
estate . . . . . . . . -- 169 271 40 -- 119
Agricultural loans . . . . -- -- 11 -- 19 --
Consumer installment
loans . . . . . . . . . 149 160 145 215 179 212
---------- ---------- ---------- ---------- --------- ----------
Total charge-offs . . . 1,129 1,298 1,075 1,561 1,726 1,782
---------- ---------- ---------- ---------- --------- ----------
Recoveries:
Commercial loans . . . . . 89 95 64 188 27 557
Consumer real estate
loans . . . . . . . . . -- 33 31 6 18 --
Commercial real estate
loans . . . . . . . . . 10 107 8 20 -- --
Agricultural loans . . . -- 32 11 -- 306 --
Consumer installment
loans . . . . . . . . . 50 52 43 51 69 40
---------- ---------- ---------- ---------- --------- ----------
Total recoveries . . . 149 319 157 265 420 597
---------- ---------- ---------- ---------- --------- ----------
Net charge-offs
(recoveries) . . . . . . . 980 979 918 1,296 1,306 1,185
---------- ---------- ---------- ---------- --------- ----------
Provision for loan
losses . . . . . . . . . . 1,829 1,718 1,542 1,966 1,680 1,406
---------- ---------- ---------- ---------- --------- ----------
Allowance at ending of the
period . . . . . . . . . . $ 6,191 $ 5,342 $ 4,603 $ 3,979 $ 3,309 $ 2,414
========== ========== ========== ========== ========= ==========
Net charge-off (recoveries)
to average total loans . . 0.22% 0.26% 0.28% 0.46% 0.50% 0.56%
Allowance to total loans at
end of period . . . . . . . 1.28% 1.27% 1.28% 1.31% 1.23% 1.09%
Allowance to nonperforming
loans . . . . . . . . . . 1.72x 1.23x 2.14x 1.21x 1.14x 1.03x
</TABLE>
The allowance for loan losses was $6.2 million as of September 30, 1997,
$5.3 million at December 31, 1996, $4.6 million as of December 31, 1995 and $4.0
million as of December 31, 1994. Net recoveries on loans previously charged off
were $149,000 for the nine months ended September 30, 1997 and $319,000 for the
year ended December 31, 1996. These recoveries were due primarily to payments
from customers' bankruptcy proceedings or payment plans on charged off loans,
which were negotiated subsequently with customers. Net charge-offs increased
$1,000 to $980,000 or 0.22% of average loans for the nine months ending
September 30, 1997 compared to the year ended December 31, 1996. Net charge-offs
increased $61,000 to $979,000 or 0.26% of average loans in 1996 from $918,000 or
0.28% of average loans in 1995. Management considers the allowance for loan
losses to be adequate to meet potential losses in the loan portfolio as of
September 30, 1997. See "--Nonperforming Loans."
Allocation of Allowance for Loan Loss
The following table sets forth the Company's allocation of the allowance
for loan losses by types of loans as of the indicated dates.
29
<PAGE> 31
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------- ----------------------------------------------------------------------
1997 1996 1995 1994
-------------------- -------------------- -------------------- -------------------- -------
LOAN LOAN LOAN LOAN
CATEGORY CATEGORY CATEGORY CATEGORY
TO GROSS TO GROSS TO GROSS TO GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT
---------- --------- ---------- ---------- -------------------- -------------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allocated:
Commercial loans . . . . . . . . $4,164 27.77% $3,339 28.10% $2,896 29.79% $1,843 27.64% $1,424
Commercial real estate
loans. . . . . . . . . . . . 199 45.51 247 42.81 226 39.96 702 41.62 618
Agriculture loans. . . . . . . . 35 4.37 35 4.76 35 4.40 35 5.04 35
Consumer real estate loans . . . 104 18.46 67 19.21 55 20.30 110 19.98 88
Consumer installment loans . . . 242 3.89 319 5.12 241 5.55 294 5.72 274
Unallocated . . . . . . . . . . 1,547 -- 1,335 -- 1,150 -- 995 -- 870
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for loan
losses . . . . . . . . . . . $6,191 100.00% $5,342 100.00% $4,603 100.00% $3,979 100.00% $3,309
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
DECEMBER 31,
----------------------------------
1993 1992
------------ ---------------------
LOAN LOAN
CATEGORY CATEGORY
TO GROSS TO GROSS
LOANS AMOUNT LOANS
----------- -------- -----------
<S> <C> <C> <C>
Allocated:
Commercial loans . . . . . . . . 29.09% $1,424 29.20%
Commercial real estate
loans. . . . . . . . . . . . 35.82 283 36.75
Agriculture loans. . . . . . . . 4.85 10 0.47
Consumer real estate loans . . . 24.52 76 27.80
Consumer installment loans . . . 5.72 262 5.78
Unallocated . . . . . . . . . . -- 359 --
--------- -------- ---------
Total allowance for loan
losses . . . . . . . . . . . 100.00% $2,414 100.00%
========= ======== =========
</TABLE>
30
<PAGE> 32
A significant portion of the Company's allowance for loan losses has
been allocated to commercial loans, which is consistent with the Company's
experience.
Securities
The Company manages its investment portfolio to provide both a source of
liquidity and earnings. Each of the Banks has its own asset liability committee
which develops current investment policies based upon its operating needs and
market circumstances. The investment policy is reviewed by senior financial
management of the Company in terms of its objectives, investment guidelines and
consistency with overall Company performance and risk management goals. Each of
the Banks' investment policy is formally reviewed and approved annually by its
board of directors. The asset and liability committees of each Bank are
responsible for monthly reporting, and monitoring compliance with the investment
policy. Monthly reports are provided to each Bank's board of directors and the
Board of Directors of the Company.
Existing investment policies at each of the Banks set limits on amounts,
maximum term and average life for each class and grade of investment security.
Investment policies do not require ratings for U. S. Treasury bonds or notes;
agency issues or agency guaranteed mortgage-backed securities. In addition,
ratings are not required for municipal investments of limited maturities within
the Company's existing market areas. Derivative investment products are
permitted as part of the investment trading policy approved by each of the
Banks' board of directors, and generally represent less than 1.00% of the
Company's total assets at any point in time.
The investment portfolio represented approximately 38.1% of the
Company's assets as of September 30, 1997. During the past three years, the
investment portfolio ranged between 30-50% of each of the Bank's assets,
depending upon liquidity requirements, deposit growth and loan demand in each
market.
The total fair value of the securities portfolio was $334.9 million as
of September 30, 1997 or 100.4% of stated book value. The fair value of the
securities portfolio was $307.2 million and $245.9 million as of December 31,
1996 and December 31, 1995 respectively.
Effective December 31, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). SFAS No. 115
requires that all debt and equity securities be classified either as
held-to-maturity, available-for-sale or trading. Held-to-maturity securities
are classified as such only when the Company has the ability and management has
the positive intent to hold those securities to maturity. Held-to-maturity
securities are carried at cost, adjusted for amortization of premiums and
accretion of discounts. Available-for-sale securities and trading securities
are carried at market value. Net unrealized gains and losses on
available-for-sale securities are excluded from earnings and reported as a
separate component of stockholders' equity, net of tax. Unrealized gains and
losses on trading securities are included in earnings. The Company has
classified a minimal amount of securities as trading. Gains or losses on the
sale of investment securities are determined based on the amortized cost of the
specific securities sold.
The following tables set forth the composition of the Company's
investment portfolio by major category as of the indicated dates. The
investment securities portfolio as of September 30, 1997, December 31, 1996,
December 31, 1995 and December 31, 1994 have been categorized as either
available-for-sale or held-to-maturity in accordance with SFAS No. 115.
31
<PAGE> 33
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------------------------------------------------
HELD-TO-MATURITY AVAILABLE FOR SALE TOTAL
----------------------- --------------------- ----------------------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR % OF
COST VALUE COST VALUE COST VALUE PORTFOLIO
----------- ---------- ---------- ---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury . . . . . . . $ -- $ -- $ 1,499 $ 1,490 $ 1,499 $ 1,490 0.45%
U.S. government agencies . . -- -- 5,000 4,748 5,000 4,748 1.50
Obligations of state and
political subdivisions . . 15,447 15,679 7,424 7,460 22,871 23,139 6.86
Mortgage-backed securities:
Pass-through securities . . -- -- 289,988 291,422 289,988 291,422 86.94
Collateralized mortgage
obligations . . . . . . -- -- 7,623 7,492 7,623 7,492 2.29
Federal Reserve stock and
other securities . . . . . -- -- 6,550 6,575 6,550 6,575 1.96
---------- --------- --------- -------- -------- -------- ------
Total . . . . . . . . . . . . $ 15,447 $ 15,679 $ 318,084 $319,187 $333,531 $334,866 100.00%
========== ========= ========= ======== ======== ======== ======
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------------
HELD-TO-MATURITY AVAILABLE FOR SALE TOTAL
----------------------- --------------------- ----------------------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR % OF
COST VALUE COST VALUE COST VALUE PORTFOLIO
----------- ---------- ---------- ---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury . . . . . . . $ -- $ -- $ 3,516 $ 3,483 $ 3,516 $ 3,483 1.14%
U.S. government agencies . . -- -- 7,500 7,081 7,500 7,081 2.42
Obligations of state and
political subdivisions . . 13,741 13,939 7,184 7,175 20,925 21,114 6.77
Mortgage-backed securities:
Pass-through securities . -- -- 258,537 257,184 258,537 257,184 83.58
Collateralized mortgage
obligations . . . . . . -- -- 13,036 12,586 13,036 12,586 4.21
Federal Reserve stock and
other securities . . . . . -- -- 5,803 5,790 5,803 5,790 1.88
---------- --------- --------- -------- -------- -------- ------
Total . . . . . . . . . . . . $ 13,741 $ 13,939 $ 295,576 $293,299 $309,317 $307,238 100.00%
========== ========= ========= ======== ======== ======== ======
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------------------------------------
HELD-TO-MATURITY AVAILABLE FOR SALE TOTAL
----------------------- --------------------- ----------------------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR % OF
COST VALUE COST VALUE COST VALUE PORTFOLIO
----------- ---------- ---------- ---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury . . . . . . . . $ -- $ -- $ 3,501 $ 3,515 $ 3,501 $ 3,515 1.43%
U.S. government agencies . . -- -- 7,500 7,146 7,500 7,146 3.07
Obligations of state and
political subdivisions . . 11,877 12,131 6,796 6,828 18,673 18,959 7.64
Mortgage-backed securities:
Pass-through securities . -- -- 170,010 172,612 170,010 172,612 69.57
Collateralized mortgage
obligations . . . . . . -- -- 43,339 42,364 43,339 42,364 17.74
Federal Reserve stock and
other securities . . . . . -- -- 1,340 1,340 1,340 1,340 0.55
---------- --------- --------- -------- -------- -------- ------
Total . . . . . . . . . . . . $ 11,877 $ 12,131 $ 232,486 $233,805 $244,363 $245,936 100.00%
========== ========= ========= ======== ======== ======== ======
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------------------------------
HELD-TO-MATURITY AVAILABLE FOR SALE TOTAL
--------------------- --------------------- ---------------------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR % OF
COST VALUE COST VALUE COST VALUE PORTFOLIO
--------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury . . . . . . . . $ -- $ -- $ 10,956 $ 10,041 $ 10,956 $ 10,041 5.97%
U.S. government agencies . . -- -- 10,291 9,301 10,291 9,301 5.61
Obligations of state and
political subdivisions . . 9,294 8,979 6,970 6,569 16,264 15,548 8.87
Mortgage-backed securities:
Pass-through securities . -- -- 82,405 77,394 82,405 77,394 44.93
Collateralized mortgage
obligations . . . . . . -- -- 63,164 56,990 63,164 56,990 34.44
Federal Reserve stock and
other securities . . . . . -- -- 311 311 311 311 0.18
-------- --------- --------- --------- --------- ---------- --------
Total . . . . . . . . . . . . $ 9,294 $ 8,979 $ 174,097 $ 160,606 $ 183,391 $ 169,585 100.00%
======== ========= ========= ========= ========= ========= ========
</TABLE>
As of September 30, 1997, the Company did not hold any off-balance sheet
derivative financial instruments such as futures, forwards, or swaps. Option
contracts totaling $3 million for two of the Banks were outstanding with
expiration dates of less than ninety days. The total amount of option contracts
outstanding at any one time during 1997 and 1996 did not exceed $10 million, and
represented less than 1.5% of total assets of the Company.
As of September 30, 1997, the Company held no securities with a book
value exceeding 10% of stockholders' equity of a single issuer other than the
U.S. Treasury or other U.S. government agencies.
The Company's securities portfolio increased 9.0% and $27.6 million as
of September 30, 1997 compared to December 31, 1996. The growth in the
investment securities portfolio was $61.4 million and $73.9 million for 1996 and
1995, respectively. The growth was attributed to the generation of new deposits
in excess of the loan funding and operational requirements of the Banks.
Most of the investment securities are agency-guaranteed, mortgage-backed
securities. Mortgage-backed securities represented 86.9%, 83.6% and 69.6% of
the total investment securities as of September 30, 1997, December 31, 1996 and
December 31, 1995, respectively. Based upon the Company's evaluation,
mortgage-backed securities are a superior investment vehicle for the Banks.
Mortgage-backed securities offer the best combination of yield and liquidity
within the Company's planning periods. Mortgage-backed securities offer
attractive yields, provide monthly cash flows, serve as acceptable collateral
and have most of the liquidity characteristics of U.S. Treasury notes and bonds.
The Banks' investment strategy during the past two years has been
focused on seasoned mortgage-backed securities of moderate average lives (5-8
years) which have been purchased at a premium to par. Historically, these
securities are more predictable in terms of price volatility, prepayment speeds
and monthly cash flows than new production issues.
Collateralized mortgage obligations have been a decreasing percentage of
the total investment securities portfolio during the past three years.
Collateralized mortgage-backed securities were $7.6 million or 2.3% of the total
investment securities portfolio as of September 30, 1997. Collateralized
mortgage obligations were $13.0 million and $43.3 million as of December 31,
1996 and 1995, respectively, and represented 4.2% and 17.7% of the total
investment portfolio as of December 31, 1996 and 1995, respectively.
Management's decision to reduce collateralized mortgage-backed obligations was
consistent with overall regulatory concerns regarding this type of investment
for community banks.
All fixed and adjustable rate mortgage pools and collateralized mortgage
obligations contain a certain amount of risk related to the uncertainty of
prepayments of the underlying mortgages. Interest rate changes have a direct
impact
33
<PAGE> 35
upon prepayment rates. The Company uses computer simulation models to test the
average life and yield volatility of adjustable rate mortgage pools and
collateralized mortgage obligations under various interest rate assumptions to
monitor volatility. Stress tests are performed quarterly.
Investment Maturities and Yields
The following tables set forth the contractual or estimated maturities
of investment securities as of September 30, 1997, and the weighted average
yields of such securities on a tax-equivalent basis assuming a 34% tax rate.
34
<PAGE> 36
<TABLE>
<CAPTION>
MATURING
----------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS
--------------------- ------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- ---------- ----------- --------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Available-For-Sale Securities:
U.S. Treasury . . . . . . . . . . . . . . . . $499 5.38% $ 991 5.00% $ -- 0.00%
U.S. government agencies . . . . . . . . . . -- -- 3,883 4.95 865 4.21
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . 236 5.00 6,597 4.66 627 5.16
Mortgage-backed securities:
Pass-through securities . . . . . . . . . -- 0.00 14,446 7.87 258,272 7.93
Collateralized mortgage obligations . . . -- 0.00 7,492 6.49 -- 0.00
Federal Reserve stock and other securities. . 0.00 1,011 3.21
------- ------- --------
Total . . . . . . . . . . . . . . . . . . . . $735 $34,420 $259,764
======= ------- ======= ------- ======== ------
5.26% 6.41% 7.91%
======= ======= ======
<CAPTION>
MATURING
--------------------------------------------
AFTER TEN YEARS TOTAL
--------------------- ---------------------
AMOUNT YIELD AMOUNT YIELD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-For-Sale Securities:
U.S. Treasury . . . . . . . . . . . . . . . . $ -- 0.00% $ 1,490 5.13%
U.S. government agencies . . . . . . . . . . -- 0.00 4,748 4.80
Obligations of state and political
subdivisions . . . . . . . . . . . . . . . -- 0.00 7,460 4.71
Mortgage-backed securities:
Pass-through securities . . . . . . . . . 18,704 7.91 291,422 7.92
Collateralized mortgage obligations . . . -- 0.00 7,492 6.49
Federal Reserve stock and other securities. . 5,564 6.53 6,575 5.99
------- --------
Total . . . . . . . . . . . . . . . . . . . . $24,268 $319,187
======= ------- ======== -------
7.59% 7.71%
======= =======
</TABLE>
<TABLE>
<CAPTION>
MATURING
----------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS
--------------------- ------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- ---------- ---------- -------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Held-to-Maturity Securities:
Obligations of state and political
subdivisions . . . . . . . . . . . . . $1,074 5.81% $11,564 5.57% $2,809 4.85%
====== ==== ======= ==== ====== ====
<CAPTION>
MATURING
--------------------------------------------
AFTER TEN YEARS TOTAL
--------------------- ---------------------
AMOUNT YIELD AMOUNT YIELD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held-to-Maturity Securities:
Obligations of state and political
subdivisions . . . . . . . . . . . . . $ -- 0.00% $15,447 5.45%
==== ======= ====
</TABLE>
35
<PAGE> 37
Deposits
The Company has experienced significant growth in total deposits in
recent years. Total deposits were $776.1 million as of September 30, 1997,
$701.2 million at December 31, 1996 and $590.7 million at December 31, 1995.
Average total deposits were $733.3 million for the nine months ended September
30, 1997, $653.6 million for the year ended December 31, 1996, and $531.8
million for the year ended December 31, 1995. These increases in deposits are
the result of increased marketing activity in 1995, 1996 and 1997 in connection
with the opening of new banking centers in Algonquin, Northwest Chicago, Downers
Grove and Galesburg, as well as normal growth in the Banks' core market areas.
The following table sets forth the average amount of and the average
rate paid on deposits by category for the indicated periods.
36
<PAGE> 38
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE NINE MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------
1997 1996
------------------------------ -----------------------------
PERCENT PERCENT
AVERAGE OF AVERAGE OF
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
-------- ---------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits . . . . . . . . . . $ 88,858 12.12% -- $ 83,743 12.81% --
Interest-bearing demand
deposits . . . . . . . . . . 68,334 9.32 2.97% 63,169 9.67 2.72%
Savings and money market
accounts . . . . . . . . . . 182,378 24.86 3.82 183,005 28.00 3.78
Time Deposits:
Certificates of deposit,
under $100,000(1) . . . . . 317,995 43.36 5.84 269,538 41.24 5.63
Certificates of deposit,
over $100,000(1) . . . . . 46,464 6.34 5.64 35,454 5.42 5.67
Public funds . . . . . . . . 29,317 4.00 5.43 18,663 2.86 5.33
-------- ------ ---- -------- ------ ----
Total time deposits . . . . 393,776 53.70 5.79 323,655 49.52 5.61
-------- ------ ---- -------- ------ ----
Total . . . . . . . . . $733,346 100.00% 4.33% $653,572 100.00% 4.10%
======== ====== ======== ======
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994
------------------------------ -----------------------------
PERCENT PERCENT
AVERAGE OF AVERAGE OF
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
------------ --------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits . . . . . . . . . . $ 78,326 14.33% -- $ 68,723 15.44% --
Interest-bearing demand
deposits . . . . . . . . . . 53,699 10.15 2.66% 48,106 10.81 2.21%
Savings and money market
accounts . . . . . . . . . . 164,284 31.03 3.92 163,077 36.65 2.85
Time Deposits:
Certificates of deposit,
under $100,000(1) . . . . . 195,848 37.00 5.48 129,152 29.02 4.59
Certificates of deposit,
over $100,000(1) . . . . . 28,095 5.31 5.87 23,328 5.24 4.42
Public funds . . . . . . . .
11,530 2.18 5.77 12,630 2.84 4.16
Total time deposits . . . . -------- ------ ---- -------- ------ ----
235,473 44.49 5.54 165,110 37.10 4.54
-------- ------ ---- -------- ------ ----
Total . . . . . . . . . $531,782 100.00% 3.95% $445,016 100.00% 2.97%
======== ====== ======== ======
</TABLE>
- -------------------
(1) Certificates of deposit exclusive of public funds.
37
<PAGE> 39
The following table summarizes the maturity distribution of deposits in
amounts of $100,000 or more as of September 30, 1997. These deposits have been
made by individuals, businesses and public and other not-for-profit entities,
most of which are located within the Company's market area.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS)
<S> <C>
Three months or less . . . . . . . . . . . . . . $40,100
Over three months through twelve months . . . . 51,126
Over one year through three years . . . . . . . 5,181
Over three years . . . . . . . . . . . . . . . . 1,000
-------
Total . . . . . . . . . . . . . . . . . . . . $97,407
=======
</TABLE>
Borrowings
The following table summarizes the Company's borrowings by short- and
long-term debt.
<TABLE>
<CAPTION>
AT OR FOR THE PERIODS ENDED
-----------------------------------------------
DECEMBER 31,
SEPTEMBER 30, ----------------------------
1997 1996 1995
------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . . $ 7,270 $ 9,991 $12,165
FHLB advances . . . . . . . . . . . . . . . . . 10,000 6,300 --
Lines of credit . . . . . . . . . . . . . . . . 16,696 15,895 15,702
------- ------- -------
Total short-term borrowings . . . . . . . . . 33,966 32,186 27,867
Long-term borrowings:
Mortgage payable . . . . . . . . . . . . . . . 225 300 375
FHLB advances . . . . . . . . . . . . . . . . . 12,000 5,000 --
------- ------- -------
Total long-term borrowings . . . . . . . . . 12,225 5,300 375
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . $46,191 $37,486 $28,242
======= ======= =======
</TABLE>
The Company uses short-term borrowings on a limited basis. These
borrowings include overnight funds purchased, securities sold under agreements
to repurchase, FHLB advances and commercial bank lines of credit. The following
table sets forth categories of short-term borrowings of the Company as of the
indicated dates or for the indicated periods.
<TABLE>
<CAPTION>
AT OR FOR THE PERIODS ENDED
-----------------------------------------------
DECEMBER 31,
SEPTEMBER 30, -------------------------------
1997 1996 1995
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Funds Purchased and Securities Sold Under
Repurchase Agreements:
Balance at end of period . . . . . . . . . . . $ 7,270 $ 9,991 $12,165
Weighted average interest rate at end of period 6.04%(1) 7.22% 6.99%
Maximum amount outstanding (2) . . . . . . . . $ 24,676 $ 35,667 $19,136
Average amount outstanding . . . . . . . . . . $ 9,617 $ 14,912 $ 9,931
Weighted average interest rate during
period . . . . . . . . . . . . . . . . . . . 5.66%(1) 5.50% 5.75%
</TABLE>
- ---------------
(1) Annualized.
(2) Based on amount outstanding at month-end during each period.
38
<PAGE> 40
The Banks have FHLB advances outstanding which come due at various dates
between January 3, 1998 and June 18, 2002. These advances are used as a
supplemental source of funds to manage interest rate risks. The following table
sets forth categories of FHLB advances of the Company as of the indicated dates
or for the indicated periods.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------
1997 1996 1995
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances:
Balance at end of period . . . . . . . . . . . $22,000 $11,300 $ --
Weighted average interest rate at end
of period . . . . . . . . . . . . . . . . . . 5.65%(1) 5.67% 0.00%
Maximum amount outstanding (2) . . . . . . . . $24,000 $11,300 $ --
Average amount outstanding . . . . . . . . . . $16,861 $ 3,378 $ --
Weighted average interest rate during period . 5.78%(1) 6.25% 0.00%
</TABLE>
- ------------
(1) Annualized.
(2) Based on amount outstanding at month-end during each period.
The Banks became members of the FHLB of Chicago during 1996. Membership
requirements include common stock ownership in the FHLB.
The Company has a revolving line of credit in the principal amount of
$18.0 million payable to the Company's principal correspondent bank. The
Company incurred the indebtedness to acquire The National Bank of Monmouth and
to provide capital contributions to the Banks to support their growth. The
Company makes interest payments at the 90-day London Inter-Bank Offered Rate
("LIBOR") and quarterly principal payments of $500,000. The principal balance
was $12.9 million as of November 30, 1997, and is due and payable on May 1,
1998, unless the line is renewed prior to that time. The Company intends to use
a portion of the net proceeds from the Offering to reduce the outstanding
balance under the revolving line of credit. See "Use of Proceeds."
Midwest One Mortgage Services, Inc. has a warehouse line of credit,
guaranteed by the Company, in the principal amount of $4.0 million payable to
the Company's principal correspondent bank. The line is used for working
capital. Midwest One Mortgage Services, Inc. makes quarterly interest payments
at 30-, 60- or 90-day LIBOR under the line of credit. The principal balance was
$3.8 million as of September 30, 1997, and is due and payable on May 1, 1998,
unless the line is renewed prior to that time.
The following table sets forth categories of short-term correspondent
bank borrowings of the Company as of the indicated dates or for the indicated
periods.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------
1997 1996 1995
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Lines of Credit:
Balance at end of period . . . . . . . . . . . $16,696 $15,895 $15,702
Weighted average interest rate at end of
period . . . . . . . . . . . . . . . . . . . 6.63%(1) 6.51% 6.85%
Maximum amount outstanding (2) . . . . . . . . $17,275 $17,042 $16,250
Average amount outstanding . . . . . . . . . . $13,764 $15,061 $15,289
Weighted average interest rate during
period . . . . . . . . . . . . . . . . . . . 6.80%(1) 6.95% 7.18%
</TABLE>
- ------------
(1) Annualized.
(2) Based on amount outstanding at month-end during each period.
The Company has a mortgage outstanding in the principal amount of
$225,000 as of September 30, 1997. Principal payments of $75,000 are due
annually through the year 2000.
39
<PAGE> 41
CAPITAL RESOURCES
The Company monitors compliance with bank and bank-holding company
regulatory capital requirements, focusing primarily on risk-based capital
guidelines. Under the risk-based capital method of capital measurement, the
ratio computed is dependent upon the amount and composition of assets recorded
on the balance sheet, and the amount and composition of off-balance sheet items,
in addition to the level of capital. Included in the risk-based capital method
are two measures of capital adequacy, Tier 1 or core capital, and Total capital,
which consists of Tier 1 plus Tier 2 capital. See "Business--Supervision and
Regulation--Bank Holding Company Regulation" for definitions of Tier 1 and Tier
2 capital.
The following tables set forth the Company's capital ratios as of the
indicated dates.
RISK-BASED CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------------------
1997 1996 1995 1994
------------------ ------------------ ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital to risk-weighted
assets . . . . . . . . . . . $ 47,813 9.34% $ 41,691 9.57% $ 34,689 7.64% $ 31,744 9.27%
Tier 1 capital minimum
requirement . . . . . . . . . 20,472 4.00 17,426 4.00 18,155 4.00 13,691 4.00
Total capital to risk-weighted
assets . . . . . . . . . . . 53,857 10.52 47,033 10.80 39,292 8.66 35,723 10.44
Total capital minimum
requirements . . . . . . . . 40,944 8.00 34,840 8.00 36,310 8.00 27,381 8.00
Total risk-weighted assets . . $511,800 $435,642 $453,873 $342,265
</TABLE>
LIQUIDITY
The Company manages its liquidity position with the objective of
maintaining sufficient funds to respond to the needs of depositors and borrowers
and to take advantage of earnings enhancement opportunities. In addition to the
normal inflow of funds from core-deposit growth, together with repayments and
maturities of loans and investments, the Company utilizes other short-term
funding sources such as securities sold under agreements to repurchase,
overnight funds purchased from correspondent banks and the acceptance of
short-term deposits from public entities. In the third quarter of 1996, the
Banks received approval for membership in the FHLB, which provides an additional
source of liquidity. The Banks also have various funding arrangements with
commercial and investment banks providing up to $269.1 million of available
funding sources in the form of federal funds lines, repurchase agreements and
brokered certificate of deposit programs. The Banks maintain these funding
arrangements to achieve favorable costs of funds and to enhance liquidity in the
event of deposits withdrawals.
The Company monitors and manages its position on several bases, which
vary depending upon the time period. As the time period is expanded, other data
is factored in, including estimated loan funding requirements, estimated loan
payoffs, investment portfolio maturities or calls, and anticipated depository
buildups or runoffs.
The Company classifies the majority of its investment securities as
available-for-sale, thereby maintaining significant liquidity. The Company's
liquidity position is further enhanced by structuring the majority of its loan
portfolio interest payments as monthly, and also by the significant
representation of retail credit and residential mortgage loans in the Company's
loan portfolio.
The Company's cash flows are composed of three classifications: cash
flows from operating activities, cash flows from investing activities, and cash
flows from financing activities. Net cash provided by operating activities,
consisting primarily of earnings, was $7.4 million and $10.6 million for the
nine months ended September 30, 1997 and 1996, respectively, and $10.5 million,
$13.1 million and $7.4 million for the years ended December 31, 1996, 1995 and
1994, respectively. A significant component in the fluctuation of net cash
provided by or used in operating activities
40
<PAGE> 42
is the timing of the proceeds from real estate loans held for sale to permanent
investors. Net cash used in investing activities, consisting primarily of loan
and investment funding, was $88.8 million and $111.3 million for the nine
months ended September 1997 and 1996, respectively, and $130.8 million, $118.8
million and $69.6 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Net cash provided by financing activities, consisting
principally of deposit growth and net bank borrowings, was $83.4 million and
$92.9 million for the nine months ended September 30, 1997 and 1996,
respectively, and $119.2 million, $111.9 million and $70.5 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
ASSET/LIABILITY MANAGEMENT
A principal function of asset/liability management is to coordinate the
levels of interest-sensitive assets and liabilities to minimize net interest
income fluctuations in times of fluctuating market interest rates.
Interest-sensitive assets and liabilities are those that are subject to
repricing in the near term, including both variable-rate instruments and those
fixed-rate instruments which are approaching maturity. Changes in net yield on
interest-sensitive assets arise when interest rates on those assets (e.g., loans
and investment securities) change in a different time period from that of
interest rates on liabilities (e.g., time deposits). Changes in net yield on
interest-sensitive assets also arise from changes in the mix and volumes of
earning assets and interest-bearing liabilities.
The Company's strategy with respect to asset/liability management is to
maximize net interest income while limiting exposure to risks associated with
volatile interest rates. This strategy is implemented by the Company's ongoing
analysis and management of its interest rate risk, utilizing duration modeling
applied to the actual assets and liabilities included in the Banks' balance
sheets. The model uses cash flows and repricing information from each
individual loan and certificate of deposit, plus repricing assumptions on
products without specific repricing dates (e.g., savings and interest-bearing
demand deposits) to calculate the durations of the Banks' assets and
liabilities. Investment securities are stress tested and the theoretical
changes in cash flow are a key element of the Company's model. The model also
projects the effect on the Company's earnings and theoretical value for a change
in interest rates.
The following table sets forth the interest rate sensitivity of the
Company's assets and liabilities as of September 30, 1997, and sets forth the
repricing dates of the Company's interest-earning assets and interest-bearing
liabilities as of that date, as well as the Company's interest rate sensitivity
gap percentages for the periods presented. The table is based upon assumptions
as to when assets and liabilities will reprice in a changing interest rate
environment, and since such assumptions can be no more than estimates, certain
assets and liabilities indicated as maturing or otherwise repricing within a
stated period may, in fact, mature or reprice at different times and at
different volumes than those estimated. Also, the renewal or repricing of
certain assets and liabilities can be discretionary and subject to competitive
and other pressures. Therefore, the following table does not and cannot
necessarily indicate the actual future impact of general interest rate movements
on the Company's net interest income.
41
<PAGE> 43
<TABLE>
<CAPTION>
0-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------ ------ ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,500 $ -- $ -- $ -- $ 10,500
Interest-bearing due from banks . . . . . . . . . . . . . . . . . 76 -- -- -- 76
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,841 32,213 191,665 98,915 334,634
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,469 34,139 100,589 20,038 485,235
-------- ---------- -------- --------- ---------
Total interest-earning assets . . . . . . . . . . . . . . . . $352,886 $ 66,352 $292,254 $ 118,953 $ 830,445
======== ========== ======== ========= =========
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits . . . . . . . . . . . . . . . . $ 71,675 $ -- $ -- $ -- $ 71,675
Money markets . . . . . . . . . . . . . . . . . . . . . . . . . . 117,582 -- -- -- 117,582
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . 70,400 -- -- -- 70,400
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 89,657 282,444 50,570 -- 422,671
-------- ---------- -------- --------- ---------
Total interest-bearing deposits . . . . . . . . . . . . . . . $349,314 $ 282,444 $ 50,570 $ -- $ 682,328
======== ========== ======== ========= =========
SHORT-TERM BORROWINGS:
Securities sold under agreements to repurchase, funds purchased,
and treasury tax deposits . . . . . . . . . . . . . . . . . . . $ 7,270 $ -- $ -- $ -- $ 7,270
Note payable, mortgage payable . . . . . . . . . . . . . . . . . 16,696 75 150 -- 16,921
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . -- 10,000 12,000 -- 22,000
-------- ---------- -------- --------- ---------
Total borrowings . . . . . . . . . . . . . . . . . . . . . . 23,966 10,075 12,150 -- 46,191
-------- ---------- -------- --------- ---------
Total interest-bearing liabilities . . . . . . . . . . . . . . . $373,280 $ 292,519 $ 62,720 $ -- $ 728,519
======== ========== ======== ========= =========
Interest sensitivity gap . . . . . . . . . . . . . . . . . . . . $(20,394) $ (226,167) $229,534 $ 118,953
Cumulative gap . . . . . . . . . . . . . . . . . . . . . . . . . (20,394) (246,561) (17,027) 101,926
Interest sensitivity gap to total assets . . . . . . . . . . . . (2.32)% (25.74)% (26.12)% 13.54%
Cumulative sensitivity gap to total assets . . . . . . . . . . . (2.32)% (28.06)% (1.94)% 11.60%
</TABLE>
Mortgage backed securities, including adjustable rate mortgage pools and
collateralized mortgage obligations, are included in the above table based on
their estimated weighted average lives obtained from outside analytical
sources. Loans are included in the above table based on contractual maturity or
contractual repricing dates. Interest-bearing demand and savings deposits are
included in the above table based on the proposed policy statement issued by
bank regulators on August 4, 1995. The table uses short-term repricing (one to
three months) assumptions for all interest-bearing core deposits. Management
believes this is a very conservative approach, which is not consistent with the
Company's actual historical experience.
The Company uses a duration model for each Bank's internal
asset/liability management. This model computes the duration of each Bank's
rate-sensitive assets and liabilities, a theoretical market value of each Bank,
and the effects of rate changes on each Bank's earnings and market value. The
results of the model indicate that the Banks on a combined basis are moderately
liability sensitive. The rate shock analysis provided by the model shows that
the effect of an immediate 200 basis point increase in rates would be to
increase net income by 2.03% or approximately $220,400. The effect of an
immediate 200 basis point decrease in rates would reduce net income by 10.08% or
approximately, $1,100,000.
Each Bank maintains specific interest rate risk management policy
limits. Based upon simulation modeling, these guidelines include: (i) a +/- 20%
change in net income upon an immediate 200 basis point change in interest rates;
and (ii) a +/- 10% change in net income upon a gradual 200 basis point change in
interest rates during a twelve month period.
EFFECTS OF INFLATION
Inflation can have a significant effect on the operating results of all
industries. However, management believes that inflationary factors are not as
critical to the banking industry as they are to other industries, due to the
high concentration of relatively short-duration monetary assets in the banking
industry. Inflation does, however, have some impact on the Company's growth,
earnings and total assets and on its need to closely monitor its equity capital
levels.
42
<PAGE> 44
Interest rates are significantly affected by inflation, but it is
difficult to assess the impact, since neither the timing nor the magnitude of
the changes in the various inflation indices coincides with changes in interest
rates. Inflation does impact the economic value of longer term, interest-bearing
assets and liabilities, but the Company attempts to limit its long-term assets
and liabilities, as indicated in the tables set forth under "--Financial
Condition" and "--Asset/Liability Management."
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), requires
that public business enterprises report financial and descriptive information
about reportable operating segments and report selected information about
operative segments in interim financial reports issued to shareholders. SFAS No.
131 is effective for financial statements for periods beginning after December
15, 1997. In the initial year of application, comparative information for
earlier years is to be restated.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), establishes standards for the reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements with the
same prominence as other financial statements. SFAS No. 130 does not require a
specific format for the financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS No. 129"), clarifies standards for
disclosing information about an entity's capital structure. SFAS No. 129
continues the previous requirements to disclose certain information about an
entity's capital structure found in APB Opinions No. 10, Omnibus Opinion-1966,
and No. 15, Earnings per Share, and FASB Statement No. 47, Disclosure of
Long-Term Obligations, for entities that were subject to the requirements of
those standards. SFAS No. 129 eliminates the exemption for nonpublic entities
from certain disclosure requirements of Opinion 15. SFAS No. 129 is effective
for financial statements for periods ending after December 15, 1997.
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"), simplifies existing computational guidelines, revises
disclosure requirements and increases the comparability of earnings per share on
an international basis. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997. The impact of adoption of
SFAS No. 128 on the Company's financial statement is not expected to be
significant.
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFAS No. 125"), as amended by Statement of Financial Accounting Standards No.
127 ("SFAS No. 127"), provides accounting and reporting standards for loan
securitization based on control of underlying the financial assets. It also
provides accounting and implementation guidance for other transfers including
partial transfers of loans, servicing of financial assets, repurchase agreements
securities lending and extinguishing of liabilities. SFAS No. 125 provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. SFAS No.
127 defers the effective date of certain provisions, primarily relating to
collateral, repurchase agreements, dollar-rolls, securities lending, and similar
transactions, until January 1, 1998. Earlier or retroactive application is not
permitted. The impact of adopting this statement is not expected to be material
to the Company's financial statements.
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<PAGE> 45
BUSINESS
THE COMPANY
The Company is a community-based bank holding company headquartered in
Melrose Park, Illinois. The Company provides a wide range of banking services,
personal and corporate trust services, residential mortgage services and limited
securities brokerage services. The Company's principal operating subsidiaries
are four Illinois community banks: Midwest Bank and Trust Company, Midwest Bank,
Midwest Bank of McHenry County and The National Bank of Monmouth. Midwest Bank
and Trust Company, Midwest Bank and Midwest Bank of McHenry County are chartered
as Illinois state banks and The National Bank of Monmouth has a national bank
charter. In addition, the Company has three consolidated nonbank subsidiaries
that provide trust, mortgage and data processing services.
The Banks are community-oriented, full-service commercial banks,
providing a wide range of banking services to individuals, small-to-medium-
sized businesses, government and public entities and not-for-profit
organizations. The Banks operate out of 13 locations with nine banking centers
in the greater Chicago metropolitan area and four banking centers in Western
Illinois. Midwest One Mortgage Services, Inc., a subsidiary of Midwest Bank, is
a residential mortgage brokerage business offering mortgage services throughout
the Chicago metropolitan area. Midwest Trust Services, Inc., a subsidiary of
Midwest Bank and Trust Company, provides trust services for individuals and
corporations. First Midwest Data Corp., a subsidiary of the Company, provides
data processing services to the Company and the Banks except The National Bank
of Monmouth.
The Company focuses on establishing and maintaining long-term
relationships with customers and is committed to serving the financial services
needs of the communities it serves. In particular, the Company has emphasized in
the past and intends to continue to emphasize its relationships with individual
customers and small-to-medium-sized businesses. The Company actively evaluates
the credit needs of its markets, including low- and moderate-income areas, and
offers products that are responsive to the needs of its customer base. The
markets served by the Company provide a mix of real estate, commercial and
consumer lending opportunities, as well as a stable core deposit base.
The Company, formerly known as First Midwest Corporation of Delaware, is
a Delaware corporation. The Company was founded as a bank holding company in
1983 for Midwest Bank and Trust Company.
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<PAGE> 46
Certain information with respect to the Banks and the Company's nonbank
consolidated subsidiaries as of September 30, 1997, is set forth below:
<TABLE>
<CAPTION>
NUMBER OF BANKING
COMPANY SUBSIDIARIES HEADQUARTERS MARKET AREA CENTERS OR OFFICES
--------------------- ------------ ----------- ---------------------
<S> <C> <C> <C>
Banks:
Midwest Bank and Trust Company Elmwood Park, IL Chicago, Elmwood Park, 5
Melrose Park, Oak Park,
River Forest, Franklin
Park
Midwest Bank Hinsdale, IL Hinsdale, Downers 2
Grove, Burr Ridge,
Westmont, Oak Brook,
Clarendon Hills
Midwest Bank of McHenry County Union, IL Union, Algonquin, 2
Marengo, Crystal Lake,
East Dundee, Lake In
the Hills, Huntley,
Carpentersville
The National Bank of Monmouth Monmouth, IL Monmouth, Galesburg, 4
Oquawka, Kirkwood
Nonbank Subsidiaries:
Midwest Trust Services, Inc. Elmwood Park, IL Chicago metropolitan 1
area
Midwest One Mortgage Services, Melrose Park, IL Chicago metropolitan 3
Inc. area
First Midwest Data Corp. Melrose Park, IL * 1
</TABLE>
- -----------------------
* Performs data processing services for the Company and the Banks except The
National Bank of Monmouth.
HISTORY
The Banks
Midwest Bank and Trust Company was established in 1959 in Elmwood Park to
provide community and commercial banking services to individuals and businesses
in the contiguous and neighboring western suburbs of Chicago. Midwest Bank and
Trust Company grew in the 1960s and 1970s with the economic development and
population expansion of Elmwood Park, Melrose Park, Forest Park, River Grove,
Franklin Park and, to a lesser extent, River Forest and Oak Park.
Midwest Bank and Trust Company's original facility was located at the corner
of North and Harlem Avenues in Elmwood Park, a central focus point for
residential traffic and commercial business throughout the 1970s. As state
banking regulations permitted, Midwest Bank and Trust Company established a
drive-up facility at the corner of North and Fifth Avenues in Melrose Park in
1978. This facility provided a convenient location to serve business
customers, which were an increasingly important part of the economic
development of Melrose Park at that time. This location and surrounding
acreage were developed into Midwest Centre in 1987, a commercial office
building with a full-service
45
<PAGE> 47
banking center of Midwest Bank and Trust Company located on its main floor.
Midwest Centre is the Company's current headquarters.
The Company pursued growth opportunities through acquisitions beginning
in the mid-to-late 1980s. Illinois State Bank of Chicago was acquired in 1986,
providing the Company with a prime downtown Chicago location on South Michigan
Avenue. Illinois State Bank of Chicago was merged into Midwest Bank and Trust
Company in 1991 and is operated as a full-service banking center at the South
Michigan Avenue location.
Midwest Bank and Trust Company added two additional banking centers in
Northwest Chicago at Pulaski Road in 1993 and Addison Street in 1996. Midwest
Bank and Trust Company currently has a network of five full-service banking
centers in diverse markets within Cook County, Illinois.
The Company acquired the State Bank of Union in McHenry County in 1987
and, in 1991 changed its name to Midwest Bank of Union. This acquisition
represented the first bank location for the Company outside of Cook County. The
bank was renamed Midwest Bank of McHenry County in 1994 and opened a
full-service banking center in Algonquin in southeastern McHenry County in
August 1994. During the past three years, assets at Midwest Bank of McHenry
County have increased from $36 million to $148 million as of September 30,
1997. As a result of this growth, Midwest Bank of McHenry County ranked as
the fifth largest among 20 banks operating within McHenry County as of June
1997.
The Company established a "de novo" bank, Midwest Bank of DuPage County,
in Hinsdale in 1991. Midwest Bank of DuPage County was created to develop
markets through the opening of a new banking center. The bank was subsequently
renamed Midwest Bank of Hinsdale in 1991, and Midwest Bank in 1996. Midwest
Bank opened a convenience banking center in 1996 in Downers Grove, within DuPage
County, which has been expanded into a full-service banking center.
In an effort to diversify the Company's core deposit base and develop
profitable growth opportunities at a reasonable cost of market entry, the
Company began an expansion program in West Central Illinois in the early 1990s.
The Company acquired the Bank of Oquawka in Henderson County in 1991 and The
National Bank of Monmouth via a merger with West Central Illinois Bancorp in
1993. Subsequently, the Bank of Oquawka was merged into The National Bank of
Monmouth in 1994. A new full-service banking center was opened in Galesburg in
Knox County in 1996. The National Bank of Monmouth currently has a network of
four banking centers in Monmouth, Galesburg, Oquawka and Kirkwood.
Nonbank Subsidiaries
The Company's nonbank subsidiaries were created in the 1990s to support
the core retail and commercial banking activities of the Company and the Banks.
First Midwest Data Corp. was established in 1991 to replace third party data
processing services and provide competitive advantages in terms of service and
delivery for the Banks. First Midwest Data Corp. provides a variety of services
to the Company and the Banks except The National Bank of Monmouth, including
processing of demand deposits, savings accounts, time deposits, loans and
general ledgers and manages telephone banking and on-line computer services for
retail and commercial customers. The National Bank of Monmouth provides its own
data processing services.
Midwest Trust Services, Inc. and Midwest One Mortgage Services, Inc.
were established to provide specialized financial services to support the
additional needs of banking customers on a value-added basis. These
subsidiaries also maintain independent customer bases that can serve as referral
leads for prospective retail and commercial relationships for the Banks.
Midwest Trust Services, Inc. was a spin-off of the trust department of
Midwest Bank and Trust Company in 1994 and was initially formed as a
wholly-owned subsidiary of the Company to provide trust services and related
specialized programs supporting each of the Banks. The Company transferred
ownership of the subsidiary back to Midwest Bank and Trust Company as a capital
contribution in 1995.
46
<PAGE> 48
Midwest One Mortgage Services, Inc. was formed by the Company in 1994 to
provide secondary market mortgage origination for the Banks and independent
customers. Mortgages originated by Midwest One Mortgage Services, Inc. are
generally sold with servicing rights released to a large, diversified group of
qualified secondary market investors. The Company transferred ownership of the
subsidiary to Midwest Bank as a capital contribution in 1997.
THE BANKS
The Company functions as a network of autonomous banks with centralized
planning and staff support functions performed at the holding company level.
Each Bank faces different levels and varied types of competition, which are
addressed by the local, decentralized nature of each Bank. The Banks maintain
full responsibility for the day-to-day operations of each banking center,
including lending practices and decision-making, pricing, sales and customer
service. The Banks are supported by centralized staff services provided by the
Company for accounting, auditing, financial and strategic planning, marketing,
human resources, loan review and regulatory compliance.
Set forth below is selected financial and other information for each
Bank for the nine months ended September 30, 1997 and 1996 and for the twelve
months ended December 31, 1996 and 1995.
47
<PAGE> 49
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------------------- ---------------------------------
1997 1996 1996 1995
--------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
MIDWEST BANK AND TRUST COMPANY(1)
Net income . . . . . . . . . . . . . . $ 4,468 $ 4,537 $ 5,971 $ 5,312
Return on average assets . . . . . . . 1.40% 1.59% 1.56% 1.61%
Return on average equity . . . . . . . 21.15% 23.16% 22.70% 22.06%
Total assets . . . . . . . . . . . . . $444,542 $395,686 $406,045 $363,523
Total loans . . . . . . . . . . . . . . $244,068 $201,075 $217,422 $203,006
Total deposits . . . . . . . . . . . . $408,125 $364,899 $369,459 $332,257
Number of banking centers . . . . . . . 5 5 5 4
MIDWEST BANK (2)
Net income . . . . . . . . . . . . . . $ 1,260 $ 1,059 $ 1,471 $ 1,095
Return on average assets . . . . . . . 1.11% 1.19% 1.19% 1.19%
Return on average equity . . . . . . . 17.04% 16.28% 16.77% 15.47%
Total assets . . . . . . . . . . . . . $161,261 $129,509 $146,269 $104,787
Total loans . . . . . . . . . . . . . . $ 96,658 $ 73,769 $ 80,538 $ 61,105
Total deposits . . . . . . . . . . . . $144,896 $114,952 $132,237 $ 95,558
Number of banking centers . . . . . . . 2 2 2 1
MIDWEST BANK OF MCHENRY COUNTY
Net income . . . . . . . . . . . . . . $ 1,202 $ 787 $ 1,128 $ 633
Return on average assets . . . . . . . 1.19% 1.00% 1.04% 0.88%
Return on average equity . . . . . . . 17.64% 14.98% 15.51% 13.28%
Total assets . . . . . . . . . . . . . $148,293 $117,416 $122,774 $ 95,111
Total loans . . . . . . . . . . . . . . $ 76,449 $ 54,621 $ 56,943 $ 40,110
Total deposits . . . . . . . . . . . . $123,050 $105,545 $106,910 $ 87,602
Number of banking centers . . . . . . . 2 2 2 2
THE NATIONAL BANK OF MONMOUTH
Net income . . . . . . . . . . . . . . $ 683 $ 644 $ 847 $ 769
Return on average assets . . . . . . . 0.83% 0.78% 0.82% 0.85%
Return on average equity . . . . . . . 8.30% 8.03% 7.88% 7.28%
Total assets . . . . . . . . . . . . . $119,040 $111,183 $108,218 $ 94,728
Total loans . . . . . . . . . . . . . . $ 63,739 $ 63,868 $ 64,196 $ 54,280
Total deposits . . . . . . . . . . . . $101,370 $ 90,191 $ 94,457 $ 76,109
Number of banking centers . . . . . . . 4 4 4 3
</TABLE>
- ------------------
(1) Does not include financial information for Midwest Trust Services, Inc.
(2) Does not include financial information for Midwest One Mortgage Services,
Inc.
The Banks accounted for nearly 99.0% of assets and virtually all net
income of the Company as of and for the nine months ended September 30, 1997 and
1996 and as of and for the years ended 1996 and 1995.
MARKETS
The Banks operate in broadly diverse markets, with varying levels of
growth rates of economic development and activity. Population trends,
geographic density and the demographic mix vary by market. The largest segments
of the Company's customer base live and work in relatively mature markets in
Cook County and West Central Illinois. The market in Hinsdale is a more
affluent and upwardly mobile segment with a higher percentage of white collar
professionals. The southern portion of McHenry County is a high growth market
characterized by a core middle class base, augmented by a rapid influx of young
families and professional couples.
48
<PAGE> 50
The Company considers its primary market areas to be those areas
immediately surrounding its offices for retail customers and, generally, within
a 10-20 mile radius of each Bank for commercial relationships. The Banks operate
out of 13 full-service locations in the Chicago metropolitan area and in Western
Illinois from offices in Monmouth, Galesburg, Oquawka and Kirkwood. Accordingly,
the Company's business extends throughout the Chicago metropolitan area and
Western Illinois, but is highly concentrated in the areas in which the Company's
offices are located. The communities in which the Company's offices are located
have a broad spectrum of demographic characteristics. These communities include
a number of densely populated areas as well as rural areas, and some extremely
high-income areas as well as many middle- income and some low- to
moderate-income areas.
The following table sets forth certain information with respect to each
of the Banks' primary markets:
<TABLE>
<CAPTION>
MEDIAN POPULATION
MARKET AREAS HOUSEHOLD OF AREA OR
BANK (ALL ARE ILLINOIS COMMUNITIES) INCOME (2) CITY (2)
- ----- ------------------------------ ---------- -------------
<S> <C> <C> <C>
Midwest Bank and Trust Company Chicago-Michigan Ave (1) $60,901 Commuter
Chicago-Addison Office (1) $40,278 56,000
Chicago-Pulaski Office (1) $27,875 48,000
Elmwood Park, Melrose Park,
Oak Park, River Forest,
Franklin Park $50,330 127,867
Midwest Bank Hinsdale, Downers Grove,
Burr Ridge, Westmont, Oak Brook,
Clarendon Hills $73,992 107,966
Midwest Bank of McHenry County Union, Algonquin, Marengo,
Crystal Lake, East Dundee, Lake
In The Hills, Carpentersville,
Huntley $46,035 75,619
National Bank of Monmouth Monmouth, Galesburg, Oquawka,
Kirkwood $26,186 45,338
</TABLE>
- ---------------
(1) Information for radius of 1 mile of bank office.
(2) Reflects 1994 estimates published by Bureau of the Census, U.S. Department
of Commerce.
According to the 1990 census, the Chicago metropolitan area is the third
largest metropolitan area in the United States with a population of
approximately 7.1 million. With approximately 600,000 manufacturing jobs, 1.1
million service jobs, 1.1 million jobs in retail/wholesale trade, transportation
and public utilities, and 300,000 jobs in finance, insurance and real estate,
the Chicago metropolitan area followed only the New York and Los Angeles
metropolitan areas in total nonagricultural wage and salary employment.
STRATEGY
The Company believes that its continued success is dependent on its
ability to provide to its customers value-added retail and commercial banking
programs and other financial products and services which are delivered by
experienced, committed banking professionals operating under the highest
standards of customer service. The growth strategy of the Company is to
increase its core banking business, further develop its mortgage, trust and
securities brokerage activities, and expand into other financial services. Key
aspects of the Company's strategy include the following:
49
<PAGE> 51
- Maintain high levels of customer service through decentralized operating
structure. The Company believes that its independent banking and service
operations, supported by a professional centralized staff, will continue to
enable the Company to remain a low cost provider of premium rate deposits
and competitively priced loan products.
- Increase market share within existing markets and expand into new markets.
The Company intends to continue to increase its core banking business in
existing markets through its commercial banking program and retail sales
and distribution system. As opportunities arise, the Company intends to
augment its internal growth and broaden its community banking presence
within the six county Chicago metropolitan area, Northern and Central
Illinois and neighboring states through branch build-outs and selective
acquisitions. The Company may also pursue joint ventures with strategic
partners in nonbanking specialized financial services.
- Enhance cross-selling of value-added products and services. The Company
serves in excess of 40,000 customers with more than 70,000 accounts. The
Company plans to generate additional business from its existing customer
base. The Company has recently installed an automated marketing central
information system that should enable it to focus its efforts on desirable
target segments within its base, offering additional customized and
personalized value-added services.
- Maintain a leadership position in product development and marketing. The
Company intends to continue to develop innovative and highly competitive
retail banking products, designed to build a strong, growing customer base
within existing and potential new markets. The Company has developed a
wide range of customized products and services targeted for specific groups
within its markets. Management intends to support product developments with
comprehensive, innovative and creative marketing and merchandising
campaigns, primarily through newsprint, direct mail and community special
events.
- Increase the revenue base of nonbank financial service subsidiaries. The
Company will seek to increase the revenues generated from trust, mortgage
and securities brokerage services and also develop and offer other
financial products and services as additional future revenue sources. A
primary focus of management's efforts will be to substantially increase the
number of valued-added trust service relationships through a broad
expansion of products and service programs, combined with an
incentive-based, comprehensive cross-selling effort targeted at qualified
commercial and retail customer accounts. The Company also intends to
materially increase secondary market origination levels through officer
calling efforts, cross-selling to the existing customer base and a more
aggressive expansion of product lines. Management intends to expand
existing securities brokerage capabilities to the Banks and, as competitive
circumstances permit, broaden them to include customized annuity and mutual
funds programs. The Company is also exploring opportunities to develop
products, programs and services in whole, term and universal life insurance
lines, as well as selected well-defined casualty areas through joint
venture agreements or agency acquisitions.
- Increase existing loan-to-deposit ratios of the Banks. The Company will
attempt to increase the Banks' loan-to-deposit ratios in order to improve
and expand its interest rate margins. Management intends to seek quality
loan relationships through comprehensive and consistent calling efforts by
experienced relationship managers and senior officers. Conservative lending
practices will continue to be applied throughout the banking network by
each Bank's weekly credit committee meeting and the Company's loan review
function.
- Expand funding sources for liquidity and interest rate risk management. The
Company will seek to expand its use of non-traditional funding sources,
including FHLB facilities, state deposits, brokered deposit relationships
and agency repurchase lines, to support its anticipated growth. These
sources will supplement the existing core deposit base, provide greater
flexibility in managing funding costs
50
<PAGE> 52
and minimize potential risks of disintermediation and rate
exposure at varying points in the economic cycle.
Management believes that these strategies, which are subject to change at any
time, will support the continued profitable growth of the Company and allow it
to maintain consistent high performance and leadership positions in its
markets.
PRODUCTS AND SERVICES
Deposit Products
Management believes the Company and the Banks are leaders in developing
and marketing innovative deposit products and programs which address the needs
of customers in each of the local markets served. These products include:
Checking Accounts. The Company has developed a range of different
checking account products designed and priced to meet specific target segments
(e.g., age and industry groups) of the local markets served by each Bank.
NOW/Money Market Accounts. The Company offers several types of premium
rate NOW accounts and money market accounts with interest rates indexed to the
prime rate or the 91-day U.S. Treasury bill rate. The Banks were one of the
first to offer these products in their respective local markets.
Time Deposits. The Company offers a wide range of innovative time
deposits, usually offered at premium rates with special features to protect the
customer's interest-earnings in changing interest rate environments. For
example, specific products include the FlexRate CD, which permit interest rate
adjustments at the customer's option, the Customer Choice CD, that has limited
or reduced prepayment penalties, and the ADDvantage CD where customers can add
additional amounts to an existing certificate at any time through maturity.
Lending Services
The Company aggressively seeks quality loan relationships. The Company's
loan portfolio consists of commercial loans, commercial real estate loans,
agricultural loans, consumer real estate loans (including home equity lines of
credit) and consumer loans. Management of the Company emphasizes sound credit
analysis and loan documentation. Management also seeks to avoid undue
concentrations of loans to a single industry or based on a single class of
collateral. The Company has concentrated its efforts on building its lending
business in the following areas:
Commercial Loans. Commercial and individual loans are made to small- to
medium-sized businesses that are sole proprietorships, partnerships, and
corporations. Generally, these loans are secured with collateral including
accounts receivable, inventory and equipment, and require personal guarantees of
the principals. Frequently, these loans are further secured with real estate
equities.
Commercial Real Estate Loans. Commercial real estate loans include loans
for acquisition, development, and construction of real estate which are secured
by the real estate involved, and other loans secured by farmland, commercial
real estate, multifamily residential properties, and other nonfarm,
nonresidential properties. Loans retained by the Company for its portfolio are
generally short-term balloon loans and adjustable rate mortgages with initial
fixed terms of one to five years.
Agricultural Loans. A relatively small, but important segment of the
loan portfolio are farm crop production loans on a seasonal basis, machinery and
equipment loans of a medium term nature and longer term real estate loans to
purchase acreage. Farm production loans are concentrated primarily in corn and
bean crops, with only a small portion tied to livestock. The National Bank of
Monmouth is a major agribusiness lender in West Central Illinois and Midwest
Bank of McHenry County has a small agricultural loan portfolio in Northern
Illinois.
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<PAGE> 53
Consumer Real Estate Loans. Consumer real estate loans are made to
finance residential units that will house from one to four families. While the
Company originates both fixed and adjustable rate consumer real estate loans,
virtually all one-to-five year adjustable rate loans originated pursuant to
Fannie Mae and FHLMC guidelines are sold in the secondary market. In the normal
course of business, the Company retains medium-term fixed-rate loans. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Financial Condition."
Home equity lines of credit, included within the Company's consumer real
estate loan portfolio, are secured by the borrower's home and can be drawn on at
the discretion of the borrower. These lines of credit are generally at variable
interest rates. When made, home equity lines, combined with the outstanding loan
balance of prior mortgage loans, generally do not exceed 80% of the appraised
value of the underlying real estate collateral.
Consumer Loans. Consumer loans (other than consumer real estate loans)
are collateralized loans to individuals for various personal reasons such as
automobile financing and home improvements.
Lending officers are assigned various levels of loan approval authority
based upon their respective levels of experience and expertise. Loan approval is
also subject to the Company's formal loan policy, as established by each Bank's
board of directors, and to the concurrence of an officers' credit committee (or
the Bank's board of directors or a committee of the board) in addition to the
recommendation of the lending officer. This system is intended to assure that
commercial credit requests are subjected to independent objective review on at
least two different levels, and is believed to be a key element of the Company's
low level of loan losses.
Management believes that the effectiveness of the Company's loan
administration is evidenced in its low delinquency rate and its low loss
experience in recent periods. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Financial Condition."
ATMs
The Banks maintain a network of 18 ATM sites generally located within
the Banks' local markets. All ATM equipment is owned by the Banks. Thirteen of
the ATM sites are located at various banking centers, and five are maintained
off-site at hotels, supermarkets and schools.
Trust Activities
Midwest Trust Services, Inc. is a full-service Illinois trust company
offering land trusts, personal trusts, custody accounts, retirement plan
services and corporate trust services. As of September 30, 1997, Midwest Trust
Services, Inc. maintained relationships representing an aggregate market value
of $120.5 million in assets with an aggregate book value of $97.8 million. In
addition, Midwest Trust Services, Inc. administered 2,036 land trust accounts
as of September 30, 1997. The service approach of Midwest Trust Services, Inc.
is personalized, reflecting client relationships and cost-effective pricing for
services rendered.
The National Bank of Monmouth also provides trust services to its
customers and maintained trust accounts with an aggregate market value of $35.3
million and an aggregate book value of $19.9 million as of September 30, 1997.
Mortgage Services
Midwest One Mortgage Services, Inc. serves customers, residents and
realtors in local markets within the Chicago metropolitan area through loan
originators located at banking centers in Elmwood Park, Melrose Park, Hinsdale
and Algonquin. The primary services offered by Midwest One Mortgage Services,
Inc. include conventional first and second mortgages on one-to-four-family
housing on a new issue or refinancing basis, as well as special programs for
first-time-homebuyers, reverse mortgages, and loans for individuals with a
history of credit problems, generally classified or described as "B", "C", and
"D" paper within the mortgage industry. Midwest One Mortgage Services, Inc.
offers a range of products with varied terms, rates and maturities to meet the
needs of customers within local markets. Fixed rate mortgages are offered from
three to thirty years, and adjustable rate mortgages are available with
different options and
52
<PAGE> 54
rate adjustment dates. The majority of mortgage loans are sold in the
secondary market to a range of investors that offer a complementary mix of
conventional and specialty loan programs.
Securities Brokerage
Securities brokerage services are provided through arrangements with an
independent regional brokerage firm. Licensed brokers are located at three
banking centers and provide services with respect to stocks and securities
trading, financial planning, mutual funds sales, fixed and variable rate
annuities and tax-exempt and conventional unit trusts.
COMPETITION
The Company competes in the financial services industry through the
Banks, Midwest One Mortgage Services, Inc. and Midwest Trust Services, Inc. The
financial services business is highly competitive. The Company encounters strong
direct competition for deposits, loans and other financial services. The
Company's principal competitors include other commercial banks, savings banks,
savings and loan associations, mutual funds, money market funds, finance
companies, credit unions, mortgage companies, private issuers of debt
obligations and suppliers of other investment alternatives, such as securities
firms.
In addition, in recent years, several major multibank holding companies
have entered or expanded in the Chicago metropolitan market. Generally, these
financial institutions are significantly larger than the Company and have access
to greater capital and other resources. In addition, many of the Company's
nonbank competitors are not subject to the same degree of regulation as that
imposed on bank holding companies, federally insured banks and national or
Illinois chartered banks. As a result, such nonbank competitors have advantages
over the Company in providing certain services.
The Company addresses these competitive challenges by creating market
differentiation and by maintaining an independent community bank presence with
local decision-making within its markets. The Bank competes for deposits
principally by offering depositors a variety of deposit programs, convenient
office locations, hours and other services. The Banks compete for loan
originations primarily through the interest rates and loan fees they charge, the
efficiency and quality of services they provide to borrowers, the variety of
their loan products and their trained staff of professional bankers.
The Company competes for qualified personnel by offering competitive
levels of compensation, management and employee cash incentive programs, and by
augmenting compensation with stock options pursuant to its stock option plan.
Attracting and retaining high quality employees is important in enabling the
Company to compete effectively for market share with both the Company's large
and small competitors.
PROPERTIES
The principal office of the Company is located in Midwest Centre at 501
West North Avenue, Melrose Park, Illinois. This four-story building is owned by
Midwest Bank and Trust Company and comprises approximately 48,000 square feet.
This location also houses the Melrose Park banking center of Midwest Bank and
Trust Company, a Midwest One Mortgage Services, Inc. office and a number of
nonaffiliated professional offices.
Midwest Bank and Trust Company maintains three full-service banking
facilities in Chicago at 300 South Michigan Avenue, 4012 North Pulaski Road and
7227 West Addison Street. Its main office is at 1606 North Harlem Avenue,
Elmwood Park. This facility is also the office of Midwest Trust Services, Inc.
Midwest Bank and Trust Company also occupies a lending facility adjacent to the
main bank building. Midwest Bank and Trust Company occupies a total of 25,100
square feet at these locations. Midwest Bank and Trust Company owns all of these
facilities, except the Michigan Avenue facility and a portion of the Elmwood
Park facility, both of which are leased.
53
<PAGE> 55
Midwest Bank is located at 500 West Chestnut Street in Hinsdale. This
facility is owned by Midwest Bank and comprises approximately 10,500 square
feet. Midwest Bank also maintains a full-service banking facility in Downers
Grove, Illinois. This leased facility totals 3,700 square feet.
Midwest Bank of McHenry County is located at 17622 Depot Street, Union,
Illinois. This facility is owned by Midwest Bank of McHenry County and comprises
approximately 4,000 square feet. Midwest Bank of McHenry County also maintains a
full-service banking facility in Algonquin, Illinois. Midwest Bank of McHenry
County owns the facility, which consists of 12,000 square feet.
The National Bank of Monmouth is located at 100 East Broadway, Monmouth,
Illinois and maintains full-service banking facilities in Galesburg, Oquawka and
Kirkwood, Illinois. The bank occupies a total of 42,900 square feet at these
locations. All of these facilities are owned by The National Bank of Monmouth.
LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time parties to
various legal actions arising in the normal course of business. Management
believes that there is no proceeding threatened or pending against the Company
or any of its subsidiaries which, if determined adversely, would have a material
adverse effect on the financial condition or results of operations of the
Company.
EMPLOYEES
As of November 30, 1997, the Company and its subsidiaries had 256
full-time employees and 104 part-time employees. Management considers its
relationship with its employees to be good.
54
<PAGE> 56
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and position of each of the Directors and executive
officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
E. V. Silveri . . . . . . . . . . . . . . . . 67 Chairman of the Board
Robert L. Woods . . . . . . . . . . . . . . . 67 President, Chief Executive Officer and Director
Angelo DiPaolo . . . . . . . . . . . . . . . 59 Director
Daniel Nagle . . . . . . . . . . . . . . . . 64 Director
Joseph Rizza . . . . . . . . . . . . . . . . 55 Director
LeRoy Rosasco . . . . . . . . . . . . . . . . 65 Director
Robert D. Small . . . . . . . . . . . . . . . 67 Director
Leon Wolin . . . . . . . . . . . . . . . . . 70 Director
Edward H. Sibbald . . . . . . . . . . . . . . 49 Executive Vice President and Chief Financial
Officer
Brad A. Luecke . . . . . . . . . . . . . . . 47 President, Midwest Bank and Trust Company
James I. McMahon . . . . . . . . . . . . . . 44 President, Midwest Bank
Stephen M. Karaba . . . . . . . . . . . . . . 40 President, Midwest Bank of McHenry County
Roger C. Davis . . . . . . . . . . . . . . . 64 President, The National Bank of Monmouth
</TABLE>
E.V. Silveri has served as Chairman of the Board of the Company since
1983. Mr. Silveri was elected a director of Midwest Bank and Trust Company in
1972 and has been Chairman of the Board of Midwest Bank and Trust Company since
1975. He is also a member of the board of directors of Midwest Bank, First
Midwest Data Corp., Midwest Trust Services, Inc. and Midwest One Mortgage
Services, Inc. Since 1984, Mr. Silveri has been the President and also a
director of Go-Tane Service Stations, Inc., a firm he co-founded in 1966.
Robert L. Woods has served as President and Chief Executive Officer and
as a Director of the Company since 1983. Previously, he was the President of
Midwest Bank and Trust Company from 1967 to 1992. Mr. Woods also serves as
Chairman of the Board of Directors of Midwest Bank. In addition, he is a
director of The National Bank of Monmouth, Midwest One Mortgage Services, Inc.,
and First Midwest Data Corp.
Angelo DiPaolo has served as a Director of the Company since 1983. He
has also served as a director of Midwest Bank and Trust Company since 1982. He
has served as President of DiPaolo Company, a heavy construction company, and
DiPaolo Center, a commercial complex in Glenview, Illinois, since 1963.
Daniel Nagle has served as a Director of the Company and as a director
of Midwest Bank and Trust Company since 1983 and 1975, respectively. He also
has served as a director of Midwest Bank since 1991 and Midwest Trust Services,
Inc. since 1994. Mr. Nagle is an attorney with the law firm of Nagle & Nagle.
Joseph Rizza has served as a Director of the Company since April 1997.
He was elected a director of Midwest Bank in 1994. Mr. Rizza is the owner of Joe
Rizza Enterprises which owns several automobile dealerships and financial
service companies in the Chicago metropolitan area.
LeRoy Rosasco has served as a Director of the Company since 1983. He
has also served as a director of Midwest Bank and Trust Company since 1969. Mr.
Rosasco has been the owner and President of ProTacTic Golf, Inc. since 1996.
Prior thereto, Mr. Rosasco was a private investor with LPR Enterprises, Inc., a
real estate investment firm, for 10 years.
Robert D. Small has served as a Director of the Company since 1983. He
was originally elected to serve as a director of Midwest Bank and Trust Company
in 1974. He has previously served as President and director of Midwest Bank of
McHenry County from 1989 to 1993. Mr. Small has been President of Small's
Furniture City since 1980.
55
<PAGE> 57
Leon Wolin has served as a Director of the Company since 1991. He was
elected a director of Midwest Bank and Trust Company in 1989 Mr. Wolin has
served as a director of Midwest Bank since 1996. Mr. Wolin has been President
of both Wolin-Levin, Inc., a real property management and consulting firm, and
Price Associates, Inc., a real estate appraisal and consulting firm since 1950.
Edward H. Sibbald was named Executive Vice President and Chief Financial
Officer of the Company in October 1997. Previously, Mr. Sibbald served as
Senior Vice President-Administration since 1991. Mr. Sibbald also serves as
Chairman of the Executive Committee and director of The National Bank of
Monmouth and as a director of Midwest Bank of McHenry County. In addition, he
is a Vice President and a director of Midwest One Mortgage Services, Inc., and
serves as a director of First Midwest Data Corp.
Brad A. Luecke has served as President and Chief Executive Officer of
Midwest Bank and Trust Company since 1991. Mr. Luecke also serves as Trust
Officer and director of Midwest Trust Services, Inc. and as a director of
Midwest One Mortgage Services, Inc.
James I. McMahon has served as President and Chief Executive Officer and
a director of Midwest Bank since 1991. Mr. McMahon has been a Vice President of
the Company since 1987. He was elected President of Midwest One Mortgage
Services in 1997. He has served as director of Midwest One Mortgage Services,
Inc. and Midwest Trust Services, Inc. since 1994.
Stephen M. Karaba has served as President of Midwest Bank of McHenry
County since 1994. Previously, Mr. Karaba was an Executive Vice President of
Midwest Bank of McHenry County and served as Vice President-Commercial Lending
of Illinois State Bank, and subsequently, Midwest Bank and Trust Company
beginning in 1989. Mr. Karaba has been a director of Midwest Bank of McHenry
County, Midwest Trust Services, Inc., and Midwest One Mortgage Services, Inc.
since 1994.
Roger C. Davis has served as President and Chief Executive Officer of
The National Bank of Monmouth since 1994. He also has been a director of The
National Bank of Monmouth since 1994. Mr. Davis was Executive Vice President of
The National Bank of Monmouth from 1991 to 1994 and served as Chairman of the
Board of Midwest Bank of Oquawka from 1993 to 1994.
BOARD OF DIRECTORS
The Board of Directors of the Company consists of eight members each
serving one-year terms that expire at the next annual meeting of stockholders.
Upon approval by the Company's stockholders at the next annual or special
meeting, the Company will implement staggered terms for the Board as described
under "Description of Capital Stock--Certain Anti-Takeover Effects of the
Company's Certificate of Incorporation, By-Laws and Delaware Law." The Board of
Directors has established an Audit Committee that recommends the annual
appointment of the Company's auditors and reviews the scope and results of the
audit and other services provided by the Company's independent auditors. In
addition, the Board of Directors acts as a Compensation Committee for the
purpose of administering the Company's 1996 Stock Option Plan.
BOARD OF DIRECTORS' COMPENSATION
All Directors of the Company receive fees of $12,000 per year for
serving on the Board. Except for Joseph Rizza and Robert Small, all Directors
of the Company are also members of the board of directors of Midwest Bank and
Trust Company. Five Directors of the Company also serve on the board of
directors of Midwest Bank, and Robert L. Woods also serves on the board of
directors of The National Bank of Monmouth.
Each director of the Company's subsidiaries received between
$3,900-8,400 per year in base directors' fees. Each subsidiary maintains its
own fee structure for director compensation.
56
<PAGE> 58
Certain subsidiaries also provide fees for director participation in
specific board of directors committees (such as loan committees, audit
committees and executive committees) which range between $420-4,200 annually.
One Director of the Company, Daniel Nagle, also serves as Corporate
Secretary and receives an annual fee not exceeding $12,000 for legal services
rendered to the board of directors of Midwest Bank and Trust Company and Midwest
Bank.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company to
the President and Chief Executive Officer and the four other most highly paid
executive officers (the "Named Executive Officers") during 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPEN- UNDERLYING COMPEN-
POSITION YEAR SALARY ($) BONUS ($) SATION ($) OPTIONS (#) SATION ($)
------------------------- ---- ---------- --------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Woods . . . . . . 1996 300,000 150,000 31,350(1) 0 11,575(2)
President and 1995 250,000 100,000 27,575(1) 0 11,358(2)
Chief Executive 1994 250,000 0 26,300(1) 0 8,998(2)
Officer
Edward H. Sibbald . . . . . 1996 126,000 25,313 13,300(3) 6,000 5,815(4)
Executive Vice 1995 119,000 24,487 6,125(3) 0 4,262(4)
President and 1994 114,400 21,977 3,000(3) 0 4,620(4)
Chief Financial
Officer
Brad A. Luecke . . . . . . 1996 155,000 31,140 15,325(5) 10,000 5,938(4)
President, Midwest 1995 145,000 35,000 16,237(5) 0 5,775(4)
Bank and Trust 1994 145,000 25,000 13,100(5) 0 5,100(4)
Company
James I. McMahon . . . . . 1996 140,000 28,584 10,566(6) 10,000 4,318(4)
President, Midwest 1995 130,000 30,500 5,869(6) 0 4,200(4)
Bank 1994 125,000 25,877 3,500(6) 0 4,512(4)
Stephen M. Karaba . . . . . 1996 90,000 18,325 7,400(7) 10,000 4,214(4)
President, Midwest 1995 80,000 16,000 3,425(7) 0 3,080(4)
Bank of McHenry 1994 65,000 9,588 3,000(7) 0 3,687(4)
County
</TABLE>
- --------------------
(1) Consists of directors' fees of $26,150, $22,375 and $21,600 in 1996, 1995
and 1994, respectively, and an automobile allowance of $5,200 in each of
1996 and 1995 and $4,800 in 1994.
(2) Consists of a matching contribution made by the Company pursuant to the
Company's 401(k) Plan of $7,917, $7,700 and $5,340 in 1996, 1995 and 1994,
respectively, and life insurance premiums paid by the Company on behalf of
Mr. Woods in the amount of $3,658 in each of 1996, 1995 and 1994.
(3) Consists of directors' fees of $8,500, $6,125 and $3,000 in 1996, 1995 and
1994, respectively, and an automobile allowance of $4,800 in 1996.
(4) Consists of a matching contribution made by the Company pursuant to the
Company's 401(k) Plan.
(5) Consists of directors' fees of $11,900 in 1996 and $11,000 in each of 1995
and 1994, and membership fees of $3,425, $5,137 and $2,000 in 1996, 1995
and 1994, respectively.
(6) Consists of directors' fees of $3,600 for each of 1996 and 1995, and $3,000
for 1994, membership fees of $2,220, $275 and $500 in 1996, 1995 and 1994,
respectively, and tuition reimbursement of $4,746 and $1,994 in 1996 and
1995, respectively.
(7) Consists of directors' fees of $3,800, $3,425 and $3,000 in 1996, 1995 and
1994, respectively, and an automobile allowance of $3,500 in 1996.
57
<PAGE> 59
The information presented below summarizes certain information about
the Common Stock underlying options which were granted in 1996 by the Company
to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OF FOR OPTION TERM
OPTION EMPLOYEES IN BASE PRICE EXPIRATION -----------------------------
GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
NAME ------------ --------------- ------------ ----------- ---------------- ---------
----
<S> <C> <C> <C> <C> <C> <C>
Edward H. Sibbald . . . . 6,000 9.7% $8.125 12/31/06 30,659 77,694
Brad A. Luecke . . . . . 10,000 16.1 8.125 12/31/06 51,098 129,492
James I. McMahon . . . . 10,000 16.1 8.125 12/31/06 51,098 129,492
Stephen M. Karaba . . . . 10,000 16.1 8.125 12/31/06 51,098 129,492
</TABLE>
The following table summarizes the number and value of stock options
relating to Common Stock that were unexercised at December 31, 1996. No stock
options have been exercised by the Named Executive Officers during 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES VALUE OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED ON REALIZED YEAR-END (#) FISCAL YEAR-END ($)
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ -------- ------------------------- -------------------------
<S <C> <C> <C> <C>
Edward H. Sibbald . . 0 0 1,500/4,500 563/1,688
Brad A. Luecke . . . 0 0 2,500/7,500 938/2,813
James I. McMahon . . 0 0 2,500/7,500 938/2,813
Stephen M. Karaba . . 0 0 2,500/7,500 938/2,813
</TABLE>
TRANSITIONAL EMPLOYMENT AGREEMENTS
The Company and certain subsidiaries of the Company expect to enter into
separate Transitional Employment Agreements with the Named Executive Officers
and certain other officers of the Company or its subsidiaries. The Transitional
Employment Agreements are designed to minimize the impact of change of control
transactions on the performance of key officers and executives. In the event of
a "change in control" (generally, the acquisition of 50% or more of the voting
power or the sale of more than 40% of the assets of the Company or the relevant
subsidiary); the agreements require the Company, the relevant subsidiary or any
successor, as the case may be, to continue the employment of the affected
officers for either 12 or 24 months in their respective positions and at their
respective salaries (including directors' fees, if any) with the right to
participate in new or continuing bonus, incentive, benefit and other plans. In
the event the employment of an officer is terminated by (i) the officer for any
reason during the first year following the change in control, (ii) by an
acquiror for any reason other than death, disability or cause, or (iii) upon
resignation by the affected officer due to constructive discharge (e.g., a
reduction in salary or benefits, a material diminution in title, duties or
responsibilities, or a significant change in hours worked or location), the
acquiror is obligated to continue the affected officer's salary (including
directors' fees, if any) and benefits through the remainder of the term of the
agreement.
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<PAGE> 60
1996 STOCK OPTION PLAN
In November 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan") pursuant to which incentive stock options and nonqualified stock options
may be granted to executives, key personnel, consultants and nonemployee
directors of the Company. The incentive stock options granted under the Plan
will be qualified as such under the Internal Revenue Code of 1986, as amended
(the "Code").
The purpose of the Plan is to allow the Company to offer executives, key
personnel, consultants and nonemployee directors stock-based incentives in the
Company, thereby giving them a stake in the Company's growth and prosperity and
encouraging them to continue their services with the Company, its subsidiaries
or affiliated companies.
The Plan permits the grant of options to purchase up to 500,000 shares
of Common Stock. Authorized but unissued shares and treasury shares may be made
available for issuance under the Plan. In the event of corporate changes
affecting the Common Stock such as stock splits, stock dividends,
reorganizations, mergers or consolidations, appropriate adjustments will be made
in the number of shares for which options may thereafter be granted under the
Plan and the option price and the number of shares subject to outstanding
options granted pursuant to the Plan.
Incentive stock options may be granted only to employees of the Company.
Nonqualified stock options may be granted to all employees of, and consultants
who provide services to, the Company or its Subsidiaries. Options may be
granted to employees or consultants at any time and from time to time in the
sole discretion of the Compensation Committee of the Board of Directors (the
"Compensation Committee"). The full Board of Directors currently serves as the
Compensation Committee. No employee or consultant may receive options covering
more than 100,000 shares in any single fiscal year.
The price to be paid for shares upon the exercise of each option
pursuant to the Plan may not be less than the fair market value of such shares
on the date on which the option is granted, as determined by the Board or the
Compensation Committee. The exercise price of any incentive stock option
granted to a person owning more than 10% of the total combined voting power of
all classes of stock of the Company or any of its subsidiaries must not be less
than 110% of the fair market value of the option shares on the date of grant.
The fair market value of the option shares shall be the most recent closing
sales price for shares of the Common Stock traded in the over-the-counter market
as reported by the market makers for the Common Stock. Upon exercise, the
option price shall be paid either in cash or, if lawful and permitted, (a) by
the exchange of a number of previously acquired shares of the Company with a
fair market value at the time of exercise equal to the total exercise purchase
price; or (b) by any other means which the Board or the Compensation Committee,
in its sole discretion, determines to be legal consideration for the shares and
to be consistent with the Plan's purposes. The Plan also permits optionees who
exercise options to elect to have the Company withhold a portion of the option
shares purchased in order to satisfy any federal, state or local tax liability
imposed on the optionee by virtue of the exercise of the option.
Each option granted shall be effective until the termination date set
forth in the written award agreement. If no date is set forth in the award
agreement, each option granted under the Plan shall be effective for a period of
ten years from the date of grant thereof, unless the period is reduced because
of death or termination of the optionee's employment, except that any incentive
stock option granted to a person owning more than 10% of the outstanding shares
of the Company must terminate not later than five years from the date of the
grant.
Options granted under the Plan shall be exercisable as prescribed in the
award agreement. If the award agreement does not set forth times with respect
to the exercisability of the options, then each option may be exercised up to
25% in the first year following the grant thereof, up to 50% in the second year,
up to 75% in the third year, and after the third year up to 100%. This
limitation shall not be effective in the event of the death of an optionee while
in the employ of the Company or its subsidiaries. Upon termination of
employment for a reason other than death, disability or for cause, the optionee
may exercise any nonqualified stock option or any incentive stock option within
three months of the date of termination, to the extent such optionee was
otherwise entitled to exercise such options. The Plan provides
59
<PAGE> 61
that the aggregate fair market value (determined as of the time the option is
granted) of the shares for which incentive stock options may be exercised for
the first time by any optionee during any calendar year may not exceed
$100,000.
Options (other than incentive stock options) may not be transferred
except to immediate family members, a trust for the benefit of immediate family
members or a partnership of sole immediate family members. So long as there is
no consideration given for the transfer, the award agreement expressly permits
the transfer and subsequent transfers are prohibited.
The Plan will be administered, construed and interpreted by either the
Board of Directors, the Compensation Committee or such other committee to whom
the Board may delegate this function. Consistent with the terms of the Plan,
the Board of Directors or the Compensation Committee will select the individuals
who shall participate in the Plan, will determine the sizes, types, terms and
conditions of stock options granted and establish and amend the rules and
regulations for the Plan's administration. The Board of Directors may at any
time alter, amend, suspend or terminate the Plan. Unless earlier terminated by
the Board of Directors, the Plan will terminate on November 19, 2006.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors functions as the Compensation Committee for
purposes of administering the Company's 1996 Stock Option Plan, and otherwise is
responsible for determining the compensation of the Company's executive
officers. Robert L. Woods, President and Chief Executive Officer of the
Company, serves on the Board of Directors.
Angelo DiPaolo, a Director of the Company, and four companies controlled
by Mr. DiPaolo received loans and lines of credit from the Banks which had an
aggregate outstanding loan balance of $8.6 million as of September 30, 1997.
Each loan was made in the ordinary course of business on terms substantially the
same as those prevailing at the time for comparable transactions with
unaffiliated persons and did not involve more than the normal risk of
collectibility or present other unfavorable features. Midwest Bank and Trust
Company has contracted with a general construction contractor, for renovations
at its Elmwood Park location. A company controlled by Angelo DiPaolo is a
subcontractor for the renovation project. The work to be performed by Mr.
DiPaolo's company has an estimated value of $90,000.
60
<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of November 30, 1997, and
as adjusted to reflect the sale of the Common Stock offered hereby, by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock; (ii) each of the Company's Directors; (iii)
each of the Named Executive Officers; and (iv) all Directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
SHARES
-------------------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME (1) BENEFICIALLY OWNED(2) OFFERING OFFERING
-------------------------------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
E.V. Silveri . . . . . . . . . . . . . . . . . . . . . 1,666,946(3) 16.6% 15.0%
Robert L. Woods . . . . . . . . . . . . . . . . . . . 383,416(4) 3.8 3.4
Angelo DiPaolo . . . . . . . . . . . . . . . . . . . . 495,422(5) 4.9 4.5
Daniel Nagle . . . . . . . . . . . . . . . . . . . . . 322,000 3.2 2.9
Joseph Rizza . . . . . . . . . . . . . . . . . . . . . 175,280(6) 1.8 1.6
LeRoy Rosasco . . . . . . . . . . . . . . . . . . . . 1,000,450(7) 10.0 9.0
Robert D. Small . . . . . . . . . . . . . . . . . . . 158,544(8) 1.6 1.4
Leon Wolin . . . . . . . . . . . . . . . . . . . . . . 306,082(9) 3.1 2.8
Edward H. Sibbald . . . . . . . . . . . . . . . . . . 12,600(10) * *
Brad A. Luecke . . . . . . . . . . . . . . . . . . . . 108,152(11) 1.1 1.0
James I. McMahon . . . . . . . . . . . . . . . . . . . 7,426(11)(12) * *
Stephen M. Karaba . . . . . . . . . . . . . . . . . . 10,540(11)(13) * *
Directors and executive officers as a group
(12 persons) . . . . . . . . . . . . . . . . . . . . 4,646,858(14) 46.4% 41.8%
</TABLE>
- --------------------
*Less than one percent.
(1) The address of each principal stockholder is 501 West North Avenue,
Melrose Park, Illinois 60160.
(2) Unless otherwise stated below, each person has sole voting and investment
power with respect to all such shares.
(3) Includes 115,680 shares held by trusts for which Mr. Silveri acts as
trustee; 34,832 shares held directly by Mr. Silveri's spouse; 2,100
shares held by trusts for which Mr. Silveri's spouse acts as trustee; and
956,494 shares held by Go-Tane Service Stations, Inc., a company
controlled by Mr. Silveri, and the Go-Tane Pension Plan.
(4) Represents shares held by trusts for which Mr. Woods or his spouse acts as
trustee.
(5) Includes 600 shares held by Mr. DiPaolo's minor grandchild.
(6) Includes 84,480 shares held by a trust for which Mr. Rizza acts as
trustee.
(7) Includes 220,880 shares held by trusts for which Mr. Rosasco acts as
trustee and 168,000 shares held directly by Mr. Rosasco's spouse.
(8) Includes the indirect ownership of 122,400 shares held in a retirement
trust account for the benefit of Mr. Small.
(9) Includes 305,282 shares held by a trust for which Mr. Wolin acts as
trustee.
(10) Includes 1,500 shares subject to currently exercisable options and the
indirect ownership of 3,300 shares held in a retirement trust account for
the benefit of Mr. Sibbald.
(11) Includes 2,500 shares subject to currently exercisable options.
(12) Includes 4,126 shares held directly by Mr. McMahon's spouse.
(13) Includes 2,000 shares held directly by Mr. Karaba's spouse.
(14) Includes an aggregate of 9,000 shares subject to currently exercisable
options.
CERTAIN TRANSACTIONS
Some of the Directors and executive officers of the Company are, and
have been during the preceding three fiscal years, customers of the Banks, and
some of the Directors and executive officers of the Company are direct or
indirect owners of 10% or more of the stock of corporations which are, or have
been in the past, customers of the Banks. As such
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<PAGE> 63
customers, they have engaged in transactions in the ordinary course of business
of the Banks, including borrowings, all of which transactions are or were on
substantially the same terms (including interest rates and collateral on loans)
as those prevailing at the time for comparable transactions with nonaffiliated
persons. In the opinion of management of the Company, none of the transactions
involved more than the normal risk of collectibility or presented any other
unfavorable features. As of September 30, 1997, the Banks had $10.5 million in
loans outstanding to the Directors and executive officers of the Company, which
amount represented 20.49% of total stockholders' equity as of that date. See
also "Management--Compensation Committee Interlocks and Insider Participation."
62
<PAGE> 64
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under federal
and state law. References under this heading to applicable statutes or
regulations are brief summaries of portions thereof which do not purport to be
complete and which are qualified in their entirety by reference to those
statutes and regulations. Any change in applicable laws or regulations may have
a material adverse effect on the business of commercial banks and bank holding
companies, including the Company and the Banks. However, management is not
aware of any current recommendations by any regulatory authority which, if
implemented, would have or would be reasonably likely to have a material effect
on the liquidity, capital resources or operations of the Company or the Banks.
BANK HOLDING COMPANY REGULATION
The Company is registered as a "bank holding company" with the Federal
Reserve and, accordingly, is subject to supervision by the Federal Reserve under
the Bank Holding Company Act (the Bank Holding Company Act and the regulations
issued thereunder are collectively the "BHC Act"). The Company is required to
file with the Federal Reserve periodic reports and such additional information
as the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve
examines the Company and the Banks, and may examine Midwest One Mortgage
Services, Inc., Midwest Trust Services, Inc. and First Midwest Data Corp.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent of the voting shares or
substantially all the assets of any bank or bank holding company, or for a
merger or consolidation of a bank holding company with another bank holding
company. With certain exceptions, the BHC Act prohibits a bank holding company
from acquiring direct or indirect ownership or control of voting shares of any
company which is not a bank or bank holding company and from engaging directly
or indirectly in any activity other than banking or managing or controlling
banks or performing services for its authorized subsidiaries. A bank holding
company may, however, engage in or acquire an interest in a company that engages
in activities which the Federal Reserve has determined, by regulation or order,
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto, such as owning and operating the trust business of
Midwest Trust Services, Inc., the mortgage lending business of Midwest One
Mortgage Services, Inc., and the data processing operations of First Midwest
Data Corp. Under the BHC Act and Federal Reserve regulations, the Company and
the Banks are prohibited from engaging in certain tie-in arrangements in
connection with an extension of credit, lease, sale of property, or furnishing
of services.
Any company, including associates and affiliates of and groups acting in
concert with such company, which purchases or subscribes for five percent or
more of the Company's Common Stock may be required to obtain prior approval of
the Illinois Office of Banks and Real Estate (the "Illinois Commissioner") and
the Federal Reserve. Prior regulatory notice and approval requirements under
the Change in Bank Control Act and the Illinois Banking Act may also apply with
respect to any person who acquires stock of the Company such that its interest
exceeds ten percent of the Company. In addition, any corporation, partnership,
trust or organized group that acquires a controlling interest in the Company or
the Banks may have to obtain approval of the Federal Reserve to become a bank
holding company and thereafter be subject to regulation as such.
It is the policy of the Federal Reserve that the Company is expected to
act as a source of financial strength to the Banks and to commit resources to
support the Banks. The Federal Reserve takes the position that in implementing
this policy, it may require the Company to provide such support when the Company
otherwise would not consider itself able to do so.
The Federal Reserve has adopted risk-based capital requirements for
assessing bank holding company capital adequacy. These standards define
regulatory capital and establish minimum capital standards in relation to assets
and off-balance sheet exposures, as adjusted for credit risks. The Federal
Reserve's risk-based guidelines apply on a consolidated basis for bank holding
companies with consolidated assets of $150 million or more and on a "bank-only"
basis for bank holding companies with consolidated assets of less than $150
million, subject to certain terms and conditions. Under the Federal Reserve's
risk-based guidelines, capital is classified into two categories. For bank
holding
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companies, Tier 1 or "core" capital consists of common stockholders' equity,
noncumulative perpetual preferred stock (including related surplus), cumulative
perpetual preferred stock (including related surplus) (subject to certain
limitations) and minority interests in the common equity accounts of
consolidated subsidiaries, and is reduced by goodwill, certain other intangible
assets and certain investments in other corporations ("Tier 1 Capital"). Tier
2 capital consists of the allowance for loan and lease losses (subject to
certain limitations), perpetual preferred stock and related surplus (subject to
certain conditions), "hybrid capital instruments," perpetual debt, mandatory
convertible debt securities, term subordinated debt and intermediate-term
preferred stock (including related surplus) (subject to certain limitations).
Under the Federal Reserve's capital guidelines, bank holding companies
are required to maintain a minimum ratio of qualifying total capital to
risk-weighted assets of eight percent, of which at least four percent must be in
the form of Tier 1 Capital. The Federal Reserve also requires a minimum
leverage ratio of Tier 1 Capital to total assets of three percent, except that
bank holding companies not rated in the highest category under the regulatory
rating system are required to maintain a leverage ratio of one percent to two
percent above such minimum. The three percent Tier 1 Capital to total assets
ratio constitutes the minimum leverage standard for bank holding companies, and
will be used in conjunction with the risk-based ratio in determining the overall
capital adequacy of banking organizations. In addition, the Federal Reserve
continues to consider the Tier 1 leverage ratio in evaluating proposals for
expansion or new activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes that
the foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels.
As of September 30, 1997, the Company had regulatory capital in excess
of the Federal Reserve's minimum requirements. The Company had a total capital
to risk-weighted assets ratio of 10.52% and a Tier 1 capital to risk-weighted
assets ratio of 9.34% as of September 30, 1997.
BANK REGULATION
Under Illinois law, each of Midwest Bank and Trust Company, Midwest
Bank, Midwest Bank of McHenry County and Midwest Trust Services, Inc. is subject
to supervision and examination by the Illinois Commissioner. As an affiliate of
these Banks, the Company is also subject to examination by the Illinois
Commissioner. The National Bank of Monmouth is subject to supervision and
examination by the OCC pursuant to the National Bank Act and regulations
promulgated thereunder. Each of the Banks is a member of the Federal Reserve
System and as such is also subject to examination by the Federal Reserve. Each
of the Banks is also a member of the FHLB of Chicago and may be subject to
examination by the FHLB of Chicago.
The deposits of the Banks are insured by the Bank Insurance Fund ("BIF")
under the provisions of the Federal Deposit Insurance Act (the "FDIA"), and the
Banks are, therefore, also subject to supervision and examination by the FDIC.
The FDIA requires that the appropriate federal regulatory authority approve any
merger and/or consolidation by or with an insured bank, as well as the
establishment or relocation of any bank or branch office. The FDIC also
supervises compliance with the provisions of federal law and regulations which
place restrictions on loans by FDIC-insured banks to their directors, executive
officers and other controlling persons.
Furthermore, banks are affected by the credit policies of other monetary
authorities, including the Federal Reserve, which regulate the national supply
of bank credit. Such regulation influences overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The monetary policies of the Federal Reserve have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.
All banks located in Illinois have traditionally been restricted as to
the number and geographic location of branches which they may establish. The
Illinois Banking Act was amended in June 1993, however, to eliminate such
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branching restrictions. Accordingly, banks located in Illinois are now
permitted to establish branches anywhere in Illinois without regard to the
location of other banks' main offices or the number of branches previously
maintained by the bank establishing the branch.
Midwest Trust Services, Inc. is a trust company subject to the Illinois
Corporate Fiduciary Act and is regulated by the Illinois Commissioner. In
addition, as subsidiaries of a bank holding company, each of Midwest One
Mortgage Services, Inc., Midwest Trust Services, Inc. and First Midwest Data
Corp. may be examined by the Federal Reserve.
FINANCIAL INSTITUTION REGULATION GENERALLY
Transactions with Affiliates. Transactions between a bank and its
holding company or other affiliates are subject to various restrictions imposed
by state and federal regulatory agencies. Such transactions include loans and
other extensions of credit, purchases of securities and other assets, and
payments of fees or other distributions. In general, these restrictions limit
the amount of transactions between an institution and an affiliate of such
institution, as well as the aggregate amount of transactions between an
institution and all of its affiliates, impose collateral requirements in some
cases, and require transactions with affiliates to be on terms comparable to
those for transactions with unaffiliated entities.
Dividend Limitations. As a holding company, the Company is primarily
dependent upon dividend distributions from its operating subsidiaries for its
income. Federal and state statutes and regulations impose restrictions on the
payment of dividends by the Company and the Banks.
Federal Reserve policy provides that a bank holding company should not
pay dividends unless (i) the bank holding company's net income over the prior
year is sufficient to fully fund the dividends and (ii) the prospective rate of
earnings retention appears consistent with the capital needs, asset quality and
overall financial condition of the bank holding company and its subsidiaries.
Delaware law also places certain limitations on the ability of the
Company to pay dividends. For example, the Company may not pay dividends to its
stockholders if, after giving effect to the dividend, the Company would not be
able to pay its debts as they become due. Because a major source of the
Company's revenue is dividends the Company receives and expects to receive from
the Banks, the Company's ability to pay dividends is likely to be dependent on
the amount of dividends paid by the Banks. No assurance can be given that the
Banks will, in any circumstances, pay such dividends to the Company on their
stock.
As Illinois state-chartered banks, none of Midwest Bank and Trust
Company, Midwest Bank or Midwest Bank of McHenry County may pay dividends in an
amount greater than its current net profits after deducting losses and bad debts
out of undivided profits provided that its surplus equals or exceeds its
capital. For the purpose of determining the amount of dividends that an Illinois
bank may pay, bad debts are defined as debts upon which interest is past due and
unpaid for a period of six months or more unless such debts are well-secured and
in the process of collection. Without the prior approval of the OCC, The
National Bank of Monmouth may not declare dividends in any calendar year in
excess of its net profit for the year plus the retained net profits for the
preceding two years.
In addition to the foregoing, the ability of the Company and the Banks
to pay dividends may be affected by the various minimum capital requirements and
the capital and noncapital standards established under the Federal Deposit
Insurance Corporation Improvements Act of 1991 ("FDICIA"), as described below.
Furthermore, the OCC may, after notice and opportunity for hearing, prohibit the
payment of a dividend by a national bank if it determines that such payment
would constitute an unsafe or unsound practice. The right of the Company, its
stockholders and its creditors to participate in any distribution of the assets
or earnings of its subsidiaries is further subject to the prior claims of
creditors of the respective subsidiaries.
Standards for Safety and Soundness. The FDIA, as amended by FDICIA and
the Riegle Community Development and Regulatory Improvement Act of 1994 requires
the Federal Reserve, together with the other federal bank regulatory agencies,
to prescribe standards of safety and soundness, by regulations or guidelines,
relating generally
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to operations and management, asset growth, asset quality, earnings, stock
valuation, and compensation. The Federal Reserve, the OCC and the other
federal bank regulatory agencies have adopted, effective August 9, 1995, a set
of guidelines prescribing safety and soundness standards pursuant to FDICIA, as
amended. The guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, and compensation,
fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and
exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director or principal
shareholder. In addition, each of the Federal Reserve and the OCC adopted
regulations that authorize, but do not require, the Federal Reserve or the OCC,
as the case may be, to order an institution that has been given notice by the
Federal Reserve or the OCC, as the case may be, that it is not satisfying any
of such safety and soundness standards to submit a compliance plan. If, after
being so notified, an institution fails to submit an acceptable compliance plan
or fails in any material respect to implement an accepted compliance plan, the
Federal Reserve or the OCC, as the case may be, must issue an order directing
action to correct the deficiency and may issue an order directing other actions
of the types to which an undercapitalized association is subject under the
"prompt corrective action" provisions of FDICIA. If an institution fails to
comply with such an order, the Federal Reserve or the OCC, as the case may be,
may seek to enforce such order in judicial proceedings and to impose civil
money penalties. The Federal Reserve, the OCC and the other federal bank
regulatory agencies also proposed guidelines for asset quality and earnings
standards.
A range of other provisions in FDICIA include requirements applicable
to: closure of branches; additional disclosures to depositors with respect to
terms and interest rates applicable to deposit accounts; uniform regulations for
extensions of credit secured by real estate; restrictions on activities of and
investments by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles including the reporting of
off-balance sheet items and supplemental disclosure of estimated fair market
value of assets and liabilities in financial statements filed with the banking
regulators; increased penalties in making or failing to file assessment reports
with the FDIC; greater restrictions on extensions of credit to directors,
officers and principal stockholders; and increased reporting requirements on
agricultural loans and loans to small businesses.
In August 1995, the Federal Reserve, OCC, FDIC and other federal banking
agencies published a final rule modifying their existing risk-based capital
standards to provide for consideration of interest rate risk when assessing the
capital adequacy of a bank. Under the final rule, the Federal Reserve, the OCC
and the FDIC must explicitly include a bank's exposure to declines in the
economic value of its capital due to changes in interest rates as a factor in
evaluating a bank's capital adequacy. The Federal Reserve, the FDIC, the OCC
and other federal banking agencies also have adopted a joint agency policy
statement providing guidance to banks for managing interest rate risk. The
policy statement emphasizes the importance of adequate oversight by management
and a sound risk management process. The assessment of interest rate risk
management made by the banks' examiners will be incorporated into the banks'
overall risk management rating and used to determine the effectiveness of
management.
Prompt Corrective Action. FDICIA requires the federal banking
regulators, including the Federal Reserve, the OCC and the FDIC, to take prompt
corrective action with respect to depository institutions that fall below
certain capital standards and prohibits any depository institution from making
any capital distribution that would cause it to be undercapitalized.
Institutions that are not adequately capitalized may be subject to a variety of
supervisory actions including, but not limited to, restrictions on growth,
investment activities, capital distributions and affiliate transactions and will
be required to submit a capital restoration plan which, to be accepted by the
regulators, must be guaranteed in part by any company having control of the
institution (such as the Company). In other respects, FDICIA provides for
enhanced supervisory authority, including greater authority for the appointment
of a conservator or receiver for undercapitalized institutions. The
capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions.
However, federal banking agencies have indicated that, in regulating bank
holding companies, the agencies may take appropriate action at the holding
company level based on their assessment of the effectiveness of supervisory
actions imposed upon subsidiary insured depository institutions pursuant to the
prompt corrective action provisions of FDICIA.
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Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured
institution, each of the Banks is required to pay deposit insurance premiums
based on the risk it poses to the insurance fund. The FDIC has authority to
raise or lower assessment rates on insured deposits in order to achieve certain
designated reserve ratios in the insurance funds and to impose special
additional assessments. The FDIC recently amended the risk-based assessment
system and on December 11, 1995, adopted a new assessment rate schedule for BIF
insured deposits. The new assessment rate schedule, effective with respect to
the semiannual premium assessment beginning January 1, 1996, provides for an
assessment range of zero to 0.27% (subject to a $2,000 minimum) of deposits
depending on capital and supervisory factors. Each depository institution is
assigned to one of three capital groups: "well capitalized," "adequately
capitalized" or "less than adequately capitalized." Within each capital group,
institutions are assigned to one of three supervisory subgroups: "healthy,"
"supervisory concern" or "substantial supervisory concern." Accordingly, there
are nine combinations of capital groups and supervisory subgroups to which
varying assessment rates would be applicable. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned.
During the first nine months of 1997, the Banks were assessed deposit
insurance in the aggregate amount of $63,000. Deposit insurance may be
terminated by the FDIC upon a finding that an institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC. The management of each of the Banks does not
know any practice, condition or violation that might lead to termination of
deposit insurance.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996
enacted on September 30, 1996 provides that beginning with semi-annual periods
after December 31, 1996, Bank Insurance Fund deposits will also be assessed to
pay interest on the bonds (the "FICO Bonds") issued in the late 1980s by the
Financing Corporation to recapitalize the now defunct Federal Savings & Loan
Insurance Corporation. For purposes of the assessments to pay interest on the
FICO Bonds, BIF deposits will be assessed at a rate of 20% of the assessment
rate applicable to SAIF deposits until December 31, 1999. After the earlier of
December 31, 1999 or the date on which the last savings association ceases to
exist, full pro rata sharing of FICO assessments will begin. It has been
estimated that the rates of assessment for the payment of interest on the FICO
Bonds will be approximately 1.3 basis points for BIF-assessable deposits and
approximately 6.4 basis points for SAIF-assessable deposits. The payment of the
assessment to pay interest on the FICO Bonds should not materially affect the
Banks.
Federal Reserve System. The Banks are subject to Federal Reserve
regulations requiring depository institutions to maintain non- interest-earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve regulations generally require three percent
reserves on the first $51.9 million of transaction accounts and $1.6 million
plus ten percent on the remainder. The first $4.0 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve) are exempted
from the reserve requirements. The Banks are in compliance with the foregoing
requirements.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), a
financial institution has a continuing and affirmative obligation, consistent
with the safe and sound operation of such institution, to help meet the credit
needs of its entire community, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires each federal banking agency, in connection with its examination of a
financial institution, to assess and assign one of four ratings to the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by the
institution, including applications for charters, branches and other deposit
facilities, relocations, mergers, consolidations, acquisitions of assets or
assumptions of liabilities, and savings and loan holding company acquisitions.
The CRA also requires that all institutions make public disclosure of their CRA
ratings. Each of the Banks received "satisfactory" ratings on its most recent
CRA performance evaluation.
In April 1995, the Federal Reserve, the OCC and other federal banking
agencies adopted amendments revising their CRA regulations. Among other things,
the amended CRA regulations substitute for the prior process-based assessment
factors a new evaluation system that would rate an institution based on its
actual performance in meeting
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community needs. In particular, the proposed system would focus on three
tests: (i) a lending test, to evaluate the institution's record of making
loans in its assessment areas; (ii) an investment test, to evaluate the
institution's record of investing in community development projects, affordable
housing, and programs benefiting low or moderate income individuals and
businesses; and (iii) a service test, to evaluate the institution's delivery of
services through its branches, ATMs and other offices. The amended CRA
regulations also clarify how an institution's CRA performance would be
considered in the application process.
Consumer Compliance. Midwest Bank has been made aware of certain
deficiencies in its consumer compliance program. Management believes that any
deficiencies have already been corrected. In the event that such deficiencies
were to continue over time, enforcement or administrative actions by the
appropriate federal banking regulators may impact the Company's ability to
implement its growth strategy.
Brokered Deposits. Well-capitalized institutions are not subject to
limitations on brokered deposits, while an adequately capitalized institution is
able to accept, renew or rollover brokered deposits only with a waiver from the
FDIC and subject to certain restrictions on the yield paid on such deposits.
Undercapitalized institutions are not permitted to accept brokered deposits.
Enforcement Actions. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
enforcement action against an institution that fails to comply with regulatory
requirements, particularly capital requirements. Possible enforcement actions
range from the imposition of a capital plan and capital directive to
receivership, conservatorship or the termination of deposit insurance.
Interstate Banking and Branching Legislation. On September 29, 1994,
the Riegle-Neal Interstate Banking and Efficiency Act of 1994 (the "Interstate
Banking Act") was enacted. Under the Interstate Banking Act, adequately
capitalized and adequately managed bank holding companies will be allowed to
acquire banks across state lines subject to certain limitations. In addition,
under the Interstate Banking Act, since June 1, 1997, banks have been permitted,
under some circumstances, to merge with one another across state lines and
thereby create a main bank with branches in separate states. After establishing
branches in a state through an interstate merger transaction, a bank may
establish and acquire additional branches at any location in the state where any
bank involved in the interstate merger could have established or acquired
branches under applicable federal and state law.
Under the Interstate Banking Act, states could adopt legislation
permitting interstate mergers before June 1, 1997. Alternatively, states could
adopt legislation before June 1, 1997, subject to certain conditions, opting out
of interstate branching. Illinois adopted legislation, effective September 29,
1995, permitting interstate mergers beginning on June 1, 1997. It is
anticipated that this interstate merger and branching ability will increase
competition and further consolidate the financial institutions industry.
MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings of banks and bank holding companies are affected by general
economic conditions and also by the fiscal and monetary policies of federal
regulatory agencies, including the Federal Reserve. Through open market
transactions, variations in the discount rate and the establishment of reserve
requirements, the Federal Reserve exerts considerable influence over the cost
and availability of funds obtainable for lending or investing.
The above monetary and fiscal policies and resulting changes in interest
rates have affected the operating results of all commercial banks in the past
and are expected to do so in the future. The Banks and their respective holding
companies cannot fully predict the nature or the extent of any effects which
fiscal or monetary policies may have on their business and earnings.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 17,000,000 shares of Common Stock,
$0.01 par value, of which 10,015,898 shares were issued and outstanding prior to
the Offering. The outstanding shares of Common Stock currently are, and the
shares of Common Stock to be issued in the Offering will be (when issued and
delivered in accordance with the terms and conditions of the Offering), fully
paid and nonassessable. Each holder of record of Common Stock is entitled to
one vote per share on all matters voted upon by the Company's stockholders.
Upon completion of the public offering, holders of shares of Common Stock will
have no preemptive, redemption or cumulative voting rights. In the event of
liquidation, the holders of shares of Common Stock are entitled to share ratably
in any assets of the Company retained after payment in full of creditors and, if
any preferred stock is then authorized, issued and outstanding, after payment to
holders of such preferred stock but only to the extent of any liquidation
preference.
Dividends. The holders of Common Stock are entitled to receive and
share equally in such dividends, if any, declared by the Board of Directors out
of funds legally available therefor. The Company may pay dividends if, as and
when declared by its Board of Directors. See "Market for Common Stock and
Dividends--Dividends" If the Company issues Preferred Stock, the holders
thereof may have a priority over the holders of the Common Stock with respect to
dividends.
Voting Rights. The holders of Common Stock possess voting rights in the
Company. Stockholders elect the Company's Board of Directors and act on such
other matters as are required to be presented to them under the DGCL or the
Company's Certificate of Incorporation or as are otherwise presented to them by
the Board of Directors. Each holder of Common Stock will be entitled to one
vote per share and will not have any right to cumulate votes in the election of
directors. Accordingly, holders of more than fifty percent of the outstanding
shares of Common Stock will be able to elect all of the Directors to be elected
each year. Although there are no present plans to do so, if the Company issues
Preferred Stock, holders of the Preferred Stock may also possess voting rights.
See "Certain Anti-Takeover Effects of the Company's Certificate of Incorporation
and By-Laws and Delaware Law."
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, the holders of its Common Stock would be entitled to receive,
after payment or provision for payment of all debts and liabilities of the
Company, all assets of the Company available for distribution. If Preferred
Stock is issued, the holders thereof may have a priority over the holders of the
Common Stock in the event of any liquidation or dissolution.
Preemptive Rights and Redemption. Holders of the Common Stock will not
be entitled to preemptive rights with respect to any shares which may be issued
by the Company in the future. The Common Stock is not subject to mandatory
redemption by the Company.
PREFERRED STOCK
The Board of Directors is authorized, pursuant to the Certificate of
Incorporation, to issue 1,000,000 shares of Preferred Stock, $0.01 par value, in
one or more series with respect to which the Board, without stockholder
approval, may determine voting, conversion and other rights which could
adversely affect the rights of the holders of Common Stock. The rights of the
holders of the Common Stock would generally be subject to the prior rights of
the Preferred Stock with respect to dividends, liquidation preferences and other
matters. Among other things, Preferred Stock could be issued by the Company to
raise capital or to finance acquisitions. The issuance of Preferred Stock under
certain circumstances could have the effect of delaying or preventing a change
in control of the Company. The Company has no present plans to issue any shares
of Preferred Stock.
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CERTAIN ANTI-TAKEOVER EFFECTS OF THE CERTIFICATE OF INCORPORATION, BY-LAWS AND
DELAWARE LAW
General. Certain provisions of the Certificate of Incorporation,
By-Laws and the DGCL may have the effect of impeding the acquisition of control
of the Company by means of a tender offer, a proxy fight, open-market purchase
or otherwise in a transaction not approved by the Board of Directors. These
provisions may have the effect of discouraging a future takeover attempt which
is not approved by the Board of Directors but which individual stockholders may
deem to be in their best interests or in which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also render the removal
of the current Board of Directors or management of the Company more difficult.
The provisions of the Certificate of Incorporation and By-Laws described
below are designed to reduce, or have the effect of reducing, the vulnerability
of the Company to an unsolicited proposal for the restructuring or sale of all
or substantially all of the assets of the Company or an unsolicited takeover
attempt which is unfair to stockholders. The following description of certain
of the provisions of the Certificate of Incorporation and By-Laws of the Company
is necessarily general and is qualified in its entirety by reference to the
Certificate of Incorporation and By-Laws of the Company.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 17,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock. The shares of Common Stock and Preferred Stock have been authorized in an
amount which provides the Board of Directors with flexibility to effect, among
other things, transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these authorized shares may also be
used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board of Directors has the power to the extent consistent with its fiduciary
duty to issue a series of Preferred Stock to persons friendly to management in
order to attempt to block a merger or other transaction by which a third party
seeks control, and thereby assist the incumbent Board of Directors and
management to retain their respective positions.
Classified Board of Directors; Filling of Board Vacancies and Qualifying
Shares. The Board of Directors has approved, subject to stockholder approval at
the next annual or special meeting of stockholders, amendments to the By-Laws to
implement a classified Board of Directors with staggered terms. Upon adoption of
these amendments, the Board of Directors will be divided into three classes,
each of which will contain approximately one-third of the whole number of the
members of the Board of Directors. Each class will serve a staggered three-year
term, with approximately one-third of the total number of Directors being
elected each year. Under the DGCL, members of a staggered board may only be
removed for cause unless the Certificate of Incorporation provides otherwise.
The Certificate of Incorporation does not provide for removal of directors
without cause. The staggered board is intended to provide for continuity of the
Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use to its voting power to gain control of the Board
of Directors without the consent of the incumbent Board of Directors.
The By-Laws provide that the number of the Directors shall be eight.
The By-Laws also provide that any vacancy occurring on the Board of Directors,
including a vacancy created by an increase in the number of Directors, will be
filled for the remainder of the unexpired term by a majority vote of the
Directors then in office.
The By-Laws also provide that each person, in order to be eligible to
serve as a Director, must own, of record or beneficially, at least 120,000
shares of Common Stock.
Cumulative Voting; Action by Written Consent and Stockholder Meetings.
The Certificate of Incorporation does not provide for cumulative voting for any
purpose. The Certificate of Incorporation and By-Laws also provide that any
action required or permitted to be taken by the stockholders must be effected at
an annual or special meeting and may not be effected by written consent in lieu
of a meeting. The By-Laws provide that special meetings of the stockholders may
only be called by the Chairman or the President of the Company or a majority of
the Board of Directors.
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Delaware Business Combination Statute. Section 203 of the DGCL provides
that, subject to certain exceptions specified therein, an "interested
stockholder" of a Delaware corporation shall not engage in any business
combination, including mergers or consolidations or acquisitions of additional
shares of the corporation, with the corporation for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares), or (iii) at or subsequent to such time the business combination
is approved by the board of directors of the corporation and authorized at an
annual or special meeting of stockholders, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as otherwise specified in Section 203, an interested
stockholder is defined to include any person that is (x) the owner of 15% or
more of the outstanding voting stock of the corporation, or (y) is an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date of determination; and the affiliates and
associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. The Company has not
elected to be exempt from the restrictions imposed under Section 203. The
provisions of Section 203 may encourage persons interested in acquiring the
Company to negotiate in advance with the Board of Directors of the Company since
the stockholder approval requirement would be avoided if a majority of the
directors then in office approves either the business combination or the
transaction which results in any such person becoming an interested
stockholder. Such provisions also may have the effect of preventing changes
in the management of the Company. It is possible that such provisions could
make it more difficult to accomplish transactions which the Company's
stockholders may otherwise deem to be in their best interests.
Amendment of the Certificate of Incorporation and By-Laws. The
Certificate of Incorporation provides that the affirmative vote of the holders
of at least 66 2/3% of the voting stock, voting together as a single class, is
required to amend provisions of the Certificate of Incorporation prohibiting
stockholder action without a meeting or specifying the vote required to amend
such provisions. By-Laws may be amended by the stockholders or the Board of
Directors.
Certain By-Law Provisions. The By-Laws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting, to provide
advance notice of at least 120 days to the Company. The notice provision
requires a stockholder who desires to raise new business at an annual
stockholder meeting to provide certain information to the Company concerning the
nature of the new business, the stockholder and such stockholder's interest in
the business matter. Similarly, a stockholder wishing to nominate any person
for election as a director must provide the Company with certain information
concerning the nominee and such proposing stockholder.
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors.
Attempts to take over corporations have become increasingly common. An
unsolicited, nonnegotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage nonnegotiated takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price that reflects the true value of the
Company and that otherwise is in the best interest of all stockholders.
71
<PAGE> 73
LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION
The Certificate of Incorporation provides that no Director of the
Company will be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a Director; provided, however,
that Directors will have liability (i) for any breach of a Director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which
the Director derived an improper personal benefit.
The By-Laws provide that the Company will indemnify, to the full extent
permitted under the DGCL, any person made or threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a Director, officer, employee or agent of the Company, or is or was serving
at the Company's request as a Director, officer, employee or agent of another
corporation or other enterprise against liabilities and expenses reasonably
incurred or paid by such person in connection with such action, suit or
proceeding. Expenses incurred in defending a civil, criminal, administrative,
investigative or other action, suit or proceeding may be paid by the Company in
advance of a final disposition in accordance with the DGCL. The indemnification
and advancement of expenses provided by the By-Laws are not to be deemed
exclusive of any other rights to which any person indemnified may be entitled
under any by-law, statute, agreement, vote of stockholders, or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and will continue as to a
person who has ceased to be such Director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
The Company may purchase and maintain insurance on behalf of any indemnified
person against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the Company
would have the power to indemnify him against such liability under the By-Laws.
The provisions of the By-Laws are deemed a contract between the Company and each
Director, officer, employee and agent who serves in any such capacity at any
time while the By-Laws and relevant provisions of the DGCL, or other applicable
law, if any, are in effect, and any repeal or modification of any such law or of
the By-Laws will not affect any right or obligations then existing with respect
to any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon such state of facts.
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank, Chicago, Illinois, serves as the transfer
agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 11,115,898 shares
of Common Stock issued and outstanding (11,280,898 if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 1,100,000
shares sold in the Offering will be freely tradeable by persons other than
"affiliates" of the Company without restriction or registration under the
Securities Act. The 10,015,898 remaining shares (the "Restricted Shares") were
issued and sold by the Company in reliance upon exemptions from registration
under the Securities Act and may not be sold in the absence of registration
thereunder unless an exemption from registration is available.
All of the 10,015,898 Restricted Shares will be eligible for sale,
pursuant to the exemption set forth in Rule 144 under the Securities Act, if the
conditions of that rule have been met. In general, under Rule 144, as currently
in effect, a person (or persons whose shares are aggregated) who, together with
any prior holder who was not an affiliate of the Company, has beneficially owned
Restricted Shares for at least one year is entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the then-outstanding shares of Common Stock (approximately 111,200
shares immediately after the Offering or approximately 112,800 if the
over-allotment option is exercised in full) or the average weekly trading volume
in the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who is deemed not to have
72
<PAGE> 74
been an "affiliate" of the Company at any time during the three months
preceding a sale and who, together with any prior holder who was not an
affiliate of the Company, has beneficially owned Restricted Shares for at least
two years, would be entitled to sell such shares under Rule 144 without regard
to volume limitations, manner-of-sale provisions, notice requirements or the
availability of current public information about the Company. The Company
estimates that all of the Restricted Shares can be sold in accordance with Rule
144 upon expiration of the lockup agreements described below. The Company, its
Directors and executive officers and directors have agreed not to sell, grant
any option to sell, transfer or otherwise dispose of, any shares of the
Company's Common Stock, for a period of 180 days from the date of this
Prospectus without the prior written consent of the Representative.
The Company intends to file a registration statement on Form S-8 under
the Securities Act to register 500,000 shares of Common Stock reserved for
issuance under the Company's 1996 Stock Option Plan. See "Management -- 1996
Stock Option Plan." Accordingly, shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to affiliates,
be available for sale in the open market, unless such shares are subject to
vesting restrictions under the stock option plan or the lock-up agreements
described above.
Prior to the Offering, there has been a limited public market for the
Common Stock, and no predictions can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock in the public market could adversely affect prevailing
market prices.
73
<PAGE> 75
UNDERWRITING
The Company has entered into an Underwriting Agreement (the
"Underwriting Agreement") with the underwriters listed in the table below
(referred to individually as an "Underwriter" and collectively as the
"Underwriters"), for whom Howe Barnes Investments, Inc. is acting as
representative (the "Representative"). Subject to the terms and conditions set
forth in the Underwriting Agreement, the Company has agreed to sell to each of
the Underwriters, and each of the Underwriters has severally agreed to purchase
from the Company, the number of shares of Common Stock set forth opposite each
Underwriter's name in the table below.
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
Howe Barnes Investments, Inc. . . . . . . .
---------
Total . . . . . . . . . . . . . . . . 1,100,000
=========
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Underwriting Agreement if any is purchased (excluding shares covered by
the over-allotment option granted therein). In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Representative has advised the Company that the Underwriters propose
to offer the Common Stock to the public initially at the public offering price
set forth in the cover page of this Prospectus and to selected dealers at such
price less a concession of not more than $_____ per share. Additionally, the
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $____ per share to certain other dealers. After the initial public offering,
the public offering price and other selling terms may be changed by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to an
additional 165,000 shares of Common Stock at the same price per share to be paid
by the Underwriters for the other shares offered hereby. If the Underwriters
purchase any of such additional shares pursuant to this option, each Underwriter
will be committed to purchase such additional shares in approximately the same
proportion as set forth in the table above. The Underwriters may exercise the
option only for the purpose of covering over-allotments, if any, made in
connection with the distribution of the Common Stock offered hereby.
The Company, and the executive officers and directors of the Company who
in the aggregate own 4,637,858 shares of Common Stock as of the date hereof,
have agreed not to offer, sell, contract to sell or otherwise dispose of any
capital stock of the Company or any security convertible into or exchangeable
for such capital stock for a period of 180 days after the date of the Prospectus
without the written consent of the Representative.
The initial public offering price of the shares of Common Stock will be
determined by negotiation between the Company and the Representative. Among the
factors to be considered in determining the initial public offering price are
prevailing market and economic conditions, revenues and earnings of the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, an assessment of the Company's
management and the consideration of the above factors in relation to market
valuations of companies in related businesses.
74
<PAGE> 76
The Representatives have informed the Company that the Underwriters will
not, without customer authority, confirm sales to any accounts over which they
exercise discretionary authority.
The Company has agreed to indemnify the Underwriters and their
controlling persons against certain liabilities, including civil liabilities
under the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase shares of Common Stock.
As an exception to these rules, the Representative is permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
In addition, if the Representative over-allots (i.e., if it sells more
shares of Common Stock than are set forth on the cover page of this Prospectus),
and thereby creates a short position in the Common Stock in connection with the
offering, the Representative may reduce that short position by purchasing Common
Stock in the open market. The Representative also may elect to reduce any short
position by exercising all or part of the over-allotment option described
herein.
The Representative also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representative purchases
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, it may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or
to reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
Certain of the Underwriters that currently act as market makers for the
Common Stock may engage in "passive market making" in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended. Subject to certain conditions,
Rule 103 permits underwriters participating in a distribution to engage in
limited market making transactions during the period when Regulation M would
otherwise prohibit such activity. Rule 103 generally prohibits underwriters
engaged in passive market making activities from entering a bid or effecting a
purchase at a price which exceeds the highest bid by a market maker not
participating in the distribution. Rule 103 also limits the volume of purchases
which may be made by an underwriter in passive market making activities.
Subject to these limitations, certain Underwriters and other members of the
selling group intend to engage in passive market making in the Common Stock.
Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representative will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
LEGAL MATTERS
Certain legal matters in connection with this offering are being passed
upon for the Company by Vedder, Price, Kaufman & Kammholz, Chicago, Illinois,
and for the Underwriters by Chapman and Cutler, Chicago, Illinois.
75
<PAGE> 77
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995 and for each of the years in the three-year period ended December
31, 1996, included in this Prospectus have been audited by Crowe, Chizek and
Company LLP, independent auditors. These consolidated financial statements are
included herein in reliance on their report given upon the authority of that
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Securities and Exchange Commission (the "Commission") in
connection with the Common Stock offered by this Prospectus. This Prospectus
omits certain information, exhibits and undertakings set forth in the
Registration Statement which the Company has filed with the Commission. Such
materials may be inspected and copied upon payment of prescribed rates at the
public reference facilities of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Office of the Commission at the
following locations: Seven World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. This
information is also available on the Internet at the Commission's web site. The
address for the web site is: http://www.sec.gov. For further information with
respect to the Company, reference is hereby made to the Registration Statement
and the exhibits thereto. Statements contained in this Prospectus concerning
the provisions of any contract, agreement or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract,
agreement or other document filed as an exhibit to the Registration Statement
for a full statement of the provisions thereof. Each such statement in this
Prospectus is qualified in all respects by such reference.
76
<PAGE> 78
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MIDWEST BANC HOLDINGS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Crowe, Chizek and Company LLP, Independent Auditors . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 and 1995 . . . F-3
Consolidated Statements of Income for the nine months ended September 30, 1997 and 1996
(unaudited) and for the years ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 1997
(unaudited) and the years ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996
(unaudited) and the years ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
</TABLE>
F-1
<PAGE> 79
[CROWE CHIZEK LOGO]
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Midwest Banc Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Midwest Banc
Holdings, Inc. (formerly First Midwest Corporation of Delaware) and
Subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Corporation's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Midwest Banc
Holdings, Inc. and Subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
January 17, 1997, except for Note 15
as to which the date is December 17, 1997
F-2.
<PAGE> 80
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
September 30, ------------------
1997 1996 1995
------------- -------- --------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 37,258 $ 35,297 $ 36,392
Securities available-for-sale 319,187 293,299 233,805
Securities held-to-maturity (fair value: 1997 - $15,679
1996 - $13,939, 1995 - $12,131) 15,447 13,741 11,877
Loans 485,235 420,655 359,639
Allowance for loan losses (6,191) (5,342) (4,603)
-------- -------- --------
Net loans 479,044 415,313 355,036
Other real estate 774 925 937
Bank premises and equipment, net 14,469 14,372 12,740
Goodwill 2,484 2,618 2,833
Other assets 10,092 10,505 6,695
-------- -------- --------
Total assets $878,755 $786,070 $660,315
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 93,775 $ 93,288 $ 87,203
Interest-bearing 682,328 607,917 503,468
-------- -------- --------
Total deposits 776,103 701,205 590,671
Securities sold under agreements to repurchase
and federal funds purchased 7,270 9,991 12,165
Borrowings 38,921 27,495 16,077
Other liabilities 5,470 4,417 3,015
-------- -------- --------
Total liabilities 827,764 743,108 621,928
Shareholders' equity
Preferred stock; par value $.01 per share; authorized
1,000,000 shares; none issued
Common stock; par value $.01 per share; authorized
17,000,000 shares; issued 11,000,000 shares 110 3,437 3,437
Surplus 13,834 10,489 10,423
Retained earnings 40,909 34,932 28,174
Unrealized gain (loss) on securities available-for-sale
net of income taxes 675 (1,377) 807
Treasury stock, at cost (984,102 shares in 1997,
984,136 shares in 1996, and 982,564 shares in 1995) (4,537) (4,519) (4,454)
-------- -------- --------
Total shareholders' equity 50,991 42,962 38,387
-------- -------- --------
Total liabilities and shareholders' equity $878,755 $786,070 $660,315
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3.
<PAGE> 81
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
-------------------- -------------------------
1997 1996 1996 1995 1994
--------- --------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income
Loans $ 32,345 $ 26,924 $36,607 $ 32,851 $25,584
Securities
Taxable 16,350 14,358 19,554 13,391 9,347
Exempt from federal income taxes 768 696 939 817 684
Trading account securities 37 21 21 144 651
Federal funds sold and other short-term
investments 163 111 177 400 140
--------- --------- ------- -------- -------
Total interest income 49,663 42,110 57,298 47,603 36,406
Interest expense
Deposits 23,839 19,499 26,796 20,911 13,210
Other borrowings 1,974 1,636 2,122 1,708 1,347
--------- --------- ------- -------- -------
Total interest expense 25,813 21,135 28,918 22,619 14,557
--------- --------- ------- -------- -------
NET INTEREST INCOME 23,850 20,975 28,380 24,984 21,849
Provision for loan losses 1,829 1,097 1,718 1,542 1,966
--------- --------- ------- -------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 22,021 19,878 26,662 23,442 19,883
Other income
Service charges on deposit accounts 2,045 1,780 2,440 2,137 1,960
Gains (losses) on securities transactions 239 (4) 181 (746) (614)
Net trading account profits (losses) 114 160 174 547 (2,877)
Mortgage loan origination fees 403 318 363 471 89
Trust income 425 414 525 424 487
Other income 489 468 642 594 702
--------- --------- ------- -------- -------
Total other income 3,715 3,136 4,325 3,427 (253)
Other expenses
Salaries and employee benefits 9,082 8,325 11,180 9,961 9,349
Occupancy and equipment expense 2,379 2,232 3,151 2,957 2,747
Professional services 841 652 866 316 547
Marketing 530 535 639 580 524
Office supplies 382 453 474 408 386
FDIC insurance 63 6 8 549 941
Postage and freight 429 400 515 451 411
Other expenses 1,689 1,483 2,249 2,464 2,314
--------- --------- ------- -------- -------
Total other expenses 15,395 14,086 19,082 17,686 17,219
--------- --------- ------- -------- -------
INCOME BEFORE INCOME TAXES 10,341 8,928 11,905 9,183 2,411
Provision for income taxes 4,063 3,378 4,597 3,151 509
--------- --------- ------- -------- -------
Net income $ 6,278 $ 5,550 $ 7,308 $ 6,032 $ 1,902
========= ========= ======= ======== =======
Net income per share of common stock $ .63 $ .56 $ .73 $ .60 $ .19
========= ========= ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4.
<PAGE> 82
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities Total
Common Retained Available- Treasury Shareholders'
Stock Surplus Earnings for-Sale Stock Equity
------- ------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 3,437 $10,413 $ 21,369 $ (156) $ (1,512) $ 33,551
Net income - - 1,902 - - 1,902
Cash dividends declared ($0.055 per share) - - (574) - - (574)
Purchase 15,772 shares of treasury stock - - - - (185) (185)
Sale of 200 shares of treasury stock - 1 - - 1 2
Net decrease in fair value of securities
classified as available-for-sale, net of
income taxes of $5,144 - - - (8,092) - (8,092)
------- ------- -------- ------------- -------- -------------
Balance, December 31, 1994 3,437 10,414 22,697 (8,248) (1,696) 26,604
Net income - - 6,032 - - 6,032
Cash dividends declared ($0.055 per share) - - (555) - - (555)
Purchase 216,104 shares of treasury stock - - - - (2,809) (2,809)
Sale of 4,600 shares of treasury stock - 9 - - 51 60
Net increase in fair value of securities
classified as available-for-sale, net of
income taxes of $5,756 - - - 9,055 - 9,055
------- ------- -------- ------------- -------- -------------
Balance, December 31, 1995 3,437 10,423 28,174 807 (4,454) 38,387
Net income - - 7,308 - - 7,308
Cash dividends declared ($0.055 per share) - - (550) - - (550)
Purchase 151,880 shares of treasury stock - - - - (1,117) (1,117)
Sale of 150,308 shares of treasury stock - 66 - - 1,052 1,118
Net decrease in fair value of securities
classified as available-for-sale, net of
income taxes of $1,388 - - - (2,184) - (2,184)
------- ------- -------- ------------- -------- -------------
Balance, December 31, 1996 3,437 10,489 34,932 (1,377) (4,519) 42,962
Net income - - 6,278 - - 6,278
Cash dividends declared
($0.03 per share) - - (301) - - (301)
Recapitalization (Note 15) (3,327) 3,327 - - - -
Purchase 220,706 shares of treasury stock - - - - (2,048) (2,048)
Sale of 220,740 shares of treasury stock - 18 - - 2,030 2,048
Net increase in fair value of securities
classified as available-for-sale, net of
income taxes of $1,298 - - - 2,052 - 2,052
------- ------- -------- ------------- -------- -------------
Balance, September 30, 1997 (unaudited) $ 110 $13,834 $ 40,909 $ 675 $ (4,537) $ 50,991
======= ======= ======== ============= ======== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5.
<PAGE> 83
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,278 $ 5,550 $ 7,308 $ 6,032 $ 1,902
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 1,239 1,219 1,692 1,632 1,404
Bond premium amortization 834 839 1,153 396 819
Amortization of goodwill and other
purchase accounting adjustments 134 161 215 233 339
Provision for loan losses 1,829 1,097 1,718 1,542 1,966
Purchase of trading account securities (42,992) (51,475) (55,782) (51,998) (26,601)
Proceeds from sale of trading account
securities 43,106 51,635 55,957 54,401 24,861
Net loss (gain) on sale of securities (239) 4 (181) 746 614
Net loss (gain) on sale of trading account
Securities (114) (160) (174) (547) 2,877
Real estate loans originated for sale (30,158) (27,969) (28,572) (33,996) (7,578)
Proceeds from sales of real estate loans
originated for sale 27,393 28,425 28,154 33,149 7,288
Deferred income taxes (329) 26 35 652 (1,236)
Decrease (increase) in other assets (836) (878) (2,420) (142) 204
Increase in other liabilities 1,233 2,147 1,400 966 555
--------- --------- --------- --------- --------
Net cash provided by operating
activities 7,378 10,621 10,503 13,066 7,414
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of
securities available-for-sale 63,720 60,833 68,079 88,903 46,402
Principal payments on securities available-
for-sale 26,736 27,646 39,019 16,104 18,353
Purchase of securities available-for-sale (113,525) (158,827) (171,086) (164,182) (92,330)
Purchase of securities held-to-maturity (2,236) (3,559) (3,114) (3,256) (3,369)
Maturities of securities held-to-maturity 466 1,247 1,172 601 769
Net increase in loans (62,795) (35,616) (61,717) (55,686) (36,902)
Proceeds from sale of other real estate 151 9 143 88 406
Repayment of first mortgage on other
real estate - - - - (396)
Property and equipment expenditures (1,336) (3,023) (3,323) (1,356) (2,563)
--------- --------- --------- --------- --------
Net cash used in investing activities (88,819) (111,290) (130,827) (118,784) (69,630)
</TABLE>
(Continued)
F-6.
<PAGE> 84
MIDWEST BANC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
-------------------- -----------------------------
1997 1996 1996 1995 1994
--------- --------- -------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 74,898 $ 84,679 $110,534 $ 107,831 $ 74,563
Bank borrowings 56,550 32,300 20,608 19,797 7,111
Payments on bank borrowings (45,124) (23,849) (9,190) (17,210) (4,464)
Dividends paid (200) (300) (550) (566) (574)
Securities sold under agreements to
repurchase and federal funds purchased (2,722) 124 (2,174) 4,813 (5,967)
Treasury stock sales (purchases), net - (83) 1 (2,749) (183)
--------- --------- -------- --------- --------
Net cash provided by financing activities 83,402 92,871 119,229 111,916 70,486
--------- --------- -------- --------- --------
Increase (decrease) in cash and cash equivalents 1,961 (7,798) (1,095) 6,198 8,270
Cash and cash equivalents at beginning of period 35,297 35,297 36,392 30,194 21,924
--------- --------- -------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37,258 $ 27,499 $ 35,297 $ 36,392 $ 30,194
========= ========= ======== ========= ========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 25,793 $ 17,876 $ 28,291 $ 22,297 $ 14,414
Income taxes 4,007 2,594 4,352 2,420 1,655
</TABLE>
See accompanying notes to consolidated financial statements.
F-7.
<PAGE> 85
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 1 - NATURE OF OPERATIONS
Midwest Banc Holdings, Inc., formerly First Midwest Corporation of Delaware
(Midwest Banc or the Corporation) is a bank holding company organized under the
laws of the State of Delaware. Through its commercial bank and nonbank
subsidiaries, the Corporation provides a full line of financial services to
corporate and individual customers in the greater Chicago metropolitan area and
in Warren and Henderson Counties in western Illinois.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements of Midwest
include the accounts of Midwest Banc and its wholly-owned subsidiaries, Midwest
Bank and Trust Company, The National Bank of Monmouth, Midwest Bank of McHenry
County, Midwest Bank, and First Midwest Data Corporation, Inc. Significant
intercompany balances and transactions have been eliminated.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and with general practice in the
banking industry. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Securities: Securities are classified as held-to-maturity when the Corporation
has the ability and management has the positive intent to hold those securities
to maturity. Accordingly, they are stated at cost adjusted for amortization of
premiums and accretion of discounts. Securities are classified as
available-for-sale when the Corporation may decide to sell those securities for
changes in market interest rates, liquidity needs, changes in yields or
alternative investments, and for other reasons. They are carried at fair
value. Unrealized gains and losses on securities available-for-sale are
charged or credited to a valuation allowance which is included as a separate
component of shareholders' equity, net of income taxes. Realized gains and
losses on disposition of securities available-for-sale are based on the net
proceeds and the adjusted carrying amount of the securities sold, using the
specific identification method. Trading account securities are carried at fair
value. Realized and unrealized gains and losses on trading account securities
are recognized in the statement of income as they occur.
(Continued)
F-8.
<PAGE> 86
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans: Loans are stated net of the allowance for loan losses and unearned
discount. Impaired loans are carried at the present value of expected future
cash flows or the fair value of the related collateral, if the loan is
considered to be collateral dependent. Interest on loans is included in
interest income over the term of the loan based upon the principal balance
outstanding. Where serious doubt exists as to the collectibility of a loan,
the accrual of interest is discontinued. Loan fees and direct loan origination
costs are deferred and amortized over the term of the loan as a yield
adjustment.
Allowance for Loan Losses: An allowance for loan losses has been established
to provide for the probability that some loans may not be repaid in their
entirety. The allowance is increased by provisions for loan losses charged to
expense and decreased by charge-offs, net of recoveries. Although a loan is
charged off by management when deemed uncollectible, collection efforts may
continue and future recoveries may occur.
The allowance is maintained by management at a level considered adequate to
cover losses that are currently anticipated based on past loss experience,
general economic conditions, information about specific borrower situations
(including their financial position and collateral values) and other factors
and estimates which are subject to change over time. Estimating the risk of
loss and the amount of loss on any loan is necessarily subjective and ultimate
losses may vary from current estimates. These estimates are reviewed
periodically and as adjustments become necessary they are reported in earnings
in the periods in which they become known.
Loans are considered impaired if full principal or interest payments are not
anticipated. Each impaired loan is carried at the present value of expected
cash flows discounted at the loan's effective interest rate or at the fair
value of the collateral if the loan in collateral dependent. A portion of the
allowance for loan losses is allocated to an impaired loan if the present value
of cash flows or collateral value indicate the need for an allowance.
Smaller balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one-to-four-family
residences; residential construction loans; and automobile, home equity and
second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment.
Other Real Estate: Other real estate represents property obtained through
foreclosure or in settlement of borrower obligations and is carried at the
lower of cost which is generally the fair value at date of foreclosure or fair
value less estimated selling expenses.
(Continued)
F-9.
<PAGE> 87
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Bank Premises and Equipment: Bank premises and equipment are stated at cost,
less accumulated depreciation and amortization. Provisions for depreciation
and amortization, included in operating expenses, are computed on the
straight-line method over the estimated useful lives of the assets. The cost
of maintenance and repairs is charged to income as incurred; significant
repairs are capitalized.
Goodwill and Core Deposit Base: Goodwill and the core deposit base
intangibles, included in other assets, result from the application of purchase
accounting principles to the acquisition of subsidiary banks. Goodwill
represents the excess of acquisition cost over the fair value of net assets of
subsidiary banks and is amortized over periods ranging from 15 to 25 years
using the straight-line method. The premium paid to acquire core deposits is
being amortized over the estimated benefit life using accelerated methods.
Income Taxes: Deferred tax assets and liabilities are recognized for temporary
differences between the financial reporting basis and the tax basis of the
Corporation's assets and liabilities and expected benefits of operating loss
carryforwards and credit carryforwards. Deferred taxes are recognized for the
estimated taxes ultimately payable or recoverable based on enacted tax laws.
Changes in enacted tax rates and laws will be reflected in the financial
statements in the periods they occur.
Earnings Per Share: Earnings per share amounts are based upon the weighted
average number of shares outstanding (10,006,438 in 1996; 10,137,302 in 1995;
10,281,108 in 1994; and for the nine months ended September 30, 1997 and 1996,
10,014,638 and 10,006,570, respectively).
Statement of Cash Flows: Amounts due from banks, federal funds sold, and all
highly liquid debt instruments purchased with a maturity of three months or
less are considered to be cash equivalents. Loan disbursements and collections
and transactions in deposit accounts are reported net.
Unaudited Financial Information: In the opinion of management, the unaudited
financial information reflects all adjustments, consisting only of normal and
recurring items, necessary for a fair presentation of financial position as of
September 30, 1997 and the results of operations and cash flows for the
nine-month periods ended September 30, 1997 and 1996. Results of operations for
the nine month periods ended September 30, 1997 and 1996 are not necessarily
indicative of the results to be expected for the year.
(Continued)
F-10.
<PAGE> 88
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 3 - SECURITIES
The amortized cost and fair value of securities available-for-sale and
held-to-maturity are as follows:
<TABLE>
<CAPTION>
September 30, 1997
-------------------------------------------
Gross Gross
(In thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury securities and
obligations of U.S.
government agencies $ 6,499 $ - $ (261) $ 6,238
Obligations of states and
political subdivisions 7,424 45 (9) 7,460
Mortgage-backed securities 289,988 2,458 (1,024) 291,422
Collateralized mortgage obligations 7,623 - (131) 7,492
Equity securities 6,550 25 - 6,575
--------- ---------- ---------- --------
Total securities available-for-sale $ 318,084 $ 2,528 $ (1,425) $319,187
========= ========== ========== ========
Securities held-to-maturity
Obligations of states and
political subdivisions $ 15,447 $ 263 $ (31) $ 15,679
========= ========== ========== ========
<CAPTION>
December 31, 1996
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury securities and
obligations of U.S.
government agencies $ 11,016 $ - $ (452) $ 10,564
Obligations of states and
political subdivisions 7,184 29 (38) 7,175
Mortgage-backed securities 258,537 1,552 (2,905) 257,184
Collateralized mortgage obligations 13,036 - (450) 12,586
Equity securities 5,803 - (13) 5,790
--------- ---------- ---------- --------
Total securities available-for-sale $ 295,576 $ 1,581 $ (3,858) $293,299
========= ========== ========== ========
</TABLE>
(Continued)
F-11.
<PAGE> 89
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 3 - SECURITIES (Continued)
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------
Gross Gross
(In thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Securities held-to-maturity
Obligations of states and
political subdivisions $ 13,741 $ 228 $ (30) $13,939
========= ========== ========== =======
<CAPTION>
December 31, 1995
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury securities and
obligations of U.S.
government agencies $ 11,001 $ 19 $ (359) $ 10,661
Obligations of states and
political subdivisions 6,796 50 (18) 6,828
Mortgage-backed securities 170,010 3,296 (694) 172,612
Collateralized mortgage
obligations 43,339 1 (976) 42,364
Equity securities 1,340 - - 1,340
--------- ---------- ---------- --------
Total securities available-for-sale $ 232,486 $ 3,366 $ (2,047) $233,805
========= ========== ========== ========
Securities held-to-maturity
Obligations of states and
political subdivisions $ 11,877 $ 272 $ (18) $ 12,131
========= ========== ========== ========
</TABLE>
(Continued)
F-12.
<PAGE> 90
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 3 - SECURITIES (Continued)
The amortized cost and fair value of debt securities by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------- --------------------
(In thousands) Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Securities available-for-sale
Due in one year or less $ 735 $ 735 $ - $ -
Due after one year through
five years 11,571 11,471 16,838 16,521
Due after five years through
ten years 1,617 1,492 1,362 1,218
--------- --------- --------- ---------
13,923 13,698 18,200 17,739
Mortgage-backed securities and
collateralized mortgage obligations 297,611 298,914 271,573 269,770
--------- --------- --------- ---------
Total debt securities 311,534 312,612 289,773 287,509
Equity securities 6,550 6,575 5,803 5,790
--------- --------- --------- ---------
Total securities available-for-sale $ 318,084 $ 319,187 $ 295,576 $ 293,299
========= ========= ========= =========
Securities held-to-maturity
Due in one year or less 1,074 1,075 904 907
Due after one year through
five years 11,565 11,761 10,417 10,550
Due after five years through
ten years 2,808 2,843 2,221 2,273
Due after ten years - - 199 209
--------- --------- --------- ---------
Total securities held-to-maturity $ 15,447 $ 15,679 $ 13,741 $ 13,939
========= ========= ========= =========
</TABLE>
(Continued)
F-13.
<PAGE> 91
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 3 - SECURITIES (Continued)
Proceeds from sales of securities available-for-sale and the realized gross
gains and losses are as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
-------------------- ---------------------------
(In thousands) 1997 1996 1996 1995 1994
--------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Proceeds from sales $ 63,720 $ 60,833 $68,079 $ 88,903 $ 46,402
Gross realized gains 519 163 536 508 221
Gross realized losses (280) (167) (355) (1,254) (835)
</TABLE>
Securities with an approximate carrying value of $94,110,000, $86,117,000, and
$48,360,000 at September 30, 1997 and December 31, 1996 and 1995, respectively,
were pledged to secure public deposits, borrowings and for other purposes as
required or permitted by law. Included in securities pledged at September 30,
1997 and December 31, 1996 are $25,389,000 and $23,294,000 which have been
pledged for FHLB borrowings.
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Corporations are required to disclose fair value information about their
financial instruments. Statement of Financial Accounting Standards No. 107
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The methods and assumptions used
to determine fair values for each class of financial instruments are presented
below.
Cash and Cash Equivalents: Cash and cash equivalents are reported in the
balance sheet at amounts which approximate their fair value.
Securities: Fair values for securities are determined from quoted market
prices if available. For unquoted securities, the reported fair value is
estimated on the basis of financial and other information.
Loans: Fair values of loans have been determined by calculating the
present value of future cash flows at current rates for similar loans
which would be made to borrowers with similar credit ratings and the same
remaining maturities. Loan prepayments are assumed to occur at the same
rate as in previous periods in which interest rates were at levels similar
to current levels.
(Continued)
F-14.
<PAGE> 92
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Deposit Liabilities: Deposit liabilities with stated maturities have been
calculated at the present value of future cash flows using rates which
approximate current market rates for similar instruments. Fair values of
demand deposits are equal to the respective amounts due on demand. The
carrying amount for variable rate instruments approximates fair value.
Securities Sold Under Agreements to Repurchase, Federal Funds Purchased,
Other Borrowings, and Long-Term and Short-Term Debt: Liabilities with
stated maturities have been calculated at present values of future cash
flows using rates which approximate market rates for similar instruments.
The carrying amount for liabilities with no stated maturities approximates
estimated fair value.
Accrued Interest Receivable and Payable: Fair value for accrued interest
receivable and payable approximates the carrying amount.
Commitments to Extend Credit and Standby Letters of Credit: The fair value
of commitments is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreement and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair
value of letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle
the obligations with the counterparties at the reporting date. The fair
value of these commitments is not material.
The estimated fair values of the Corporation's financial instruments were as
follows:
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------------------------
1997 1996 1995
---------------------- ------------------- -------------------
Estimated Estimated Estimated
(In thousands) Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 37,258 $ 37,258 $ 35,297 $ 35,297 $ 36,392 $ 36,392
Securities available-for-sale 319,187 319,187 293,299 293,299 233,805 233,805
Securities held-to-maturity 15,447 15,679 13,741 13,939 11,877 12,131
Loans, net of allowance for
loan losses 479,044 483,561 415,313 420,351 355,036 360,676
Accrued interest receivable 6,201 6,201 5,472 5,472 4,533 4,533
</TABLE>
(Continued)
F-15.
<PAGE> 93
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------------------------
1997 1996 1995
---------------------- ------------------- -------------------
Estimated Estimated Estimated
(In thousands) Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Financial liabilities
Deposits
Noninterest-bearing deposits (93,775) (93,775) (93,288) (93,288) (87,203) (87,203)
Interest-bearing deposits (682,328) (682,999) (607,917) (608,264) (503,468) (504,450)
Securities sold under
agreements to repurchase
and federal funds purchased (7,270) (7,270) (9,991) (9,991) (12,165) (12,165)
Notes payable (38,921) (37,396) (27,495) (27,526) (16,077) (16,125)
Accrued interest payable (2,027) (2,027) (2,010) (2,010) (1,383) (1,383)
</TABLE>
Other assets and liabilities of the Corporation not defined as financial
instruments, such as property and equipment, are not included in the above
disclosures. Also not included are nonfinancial instruments typically not
recognized in financial statements such as the value of core deposits, loan
servicing rights, customer goodwill, and similar items.
There is no ready market for a significant portion of the Corporation's
financial instruments. Accordingly, fair values are based on various factors
relative to expected loss experience, current economic conditions, risk
characteristics, and other factors. The assumptions and estimates used in the
fair value determination process are subjective in nature and involve
uncertainties and significant judgment, and therefore, fair values cannot be
determined with precision. Changes in assumptions could significantly affect
these estimated values.
(Continued)
F-16.
<PAGE> 94
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 5 - LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) December 31,
September 30, ------------------
1997 1996 1995
------------- -------- --------
<S> <C> <C> <C>
Commercial $ 135,122 $118,471 $107,590
Commercial real estate 221,400 180,499 144,346
Agricultural 21,247 20,079 15,875
Consumer real estate 89,828 81,006 73,336
Consumer installment 18,899 21,567 20,051
------------- -------- --------
Total loans, gross 486,496 421,622 361,198
Unearned discount (1,261) (967) (1,559)
------------- -------- --------
Total loans $ 485,235 $420,655 $359,639
============= ======== ========
</TABLE>
Included in consumer real estate are $4,179,000, $1,555,000, and $1,137,000 of
loans held for sale at September 30, 1997 and December 31, 1996 and 1995,
respectively.
Information regarding impaired loans is as follows at and for the nine months
ended September 30, 1997 and at and for the years ended December 31, 1996 and
1995.
<TABLE>
<CAPTION>
(In thousands) December 31,
September 30, ------------------
1997 1996 1995
------------- -------- --------
<S> <C> <C> <C>
Average investment in impaired loans $ 3,521 $ 3,988 $ 1,823
Interest income recognized on impaired loans,
including interest income recognized on a cash basis 156 391 56
Interest income recognized on impaired loans
on a cash basis 152 380 54
Information regarding impaired loans is as follows:
Balance of impaired loans 3,138 4,238 1,623
Less portion for which no allowance for loan losses
is allocated 2,231 2,975 920
------------- -------- --------
Amount of allowance for loan losses
allocated to impaired loans $ 907 $ 1,263 $ 703
============= ======== ========
</TABLE>
(Continued)
F-17.
<PAGE> 95
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 6 - ALLOWANCE FOR LOAN LOSSES
The following is a summary of changes in the allowance for loan losses:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
-------------------- ---------------------------
(In thousands) 1997 1996 1996 1995 1994
--------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 5,342 $ 4,603 $ 4,603 $ 3,979 $ 3,309
Provision for loan losses 1,829 1,097 1,718 1,542 1,966
Loans charged off (1,129) (817) (1,298) (1,075) (1,561)
Recoveries on loans previously charged off 149 211 319 157 265
--------- --------- ------- -------- --------
Balance at end of period $ 6,191 $ 5,094 $ 5,342 $ 4,603 $ 3,979
========= ========= ======= ======== ========
</TABLE>
NOTE 7 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
September 30, ------------------
(In thousands) 1997 1996 1995
------------- -------- --------
<S> <C> <C> <C>
Land and improvements $ 4,035 $ 4,022 $ 3,556
Building and improvements 7,607 14,251 12,246
Furniture and equipment 16,355 8,683 7,924
------------- -------- --------
Total cost 27,997 26,956 23,726
Accumulated depreciation (13,528) (12,584) (10,986)
------------- -------- --------
Bank premises and equipment, net $ 14,469 $ 14,372 $ 12,740
============= ======== ========
</TABLE>
Depreciation and amortization charged to expense for the nine months ended
September 30, 1997 and 1996 and for the year ended December 31, 1996, 1995, and
1994 approximated $1,239,000, $1,219,000, $1,692,000, $1,632,000, and
$1,404,000, respectively. Occupancy expense has been reduced by approximately
$663,000 in the nine months ended September 30, 1997, $620,000 in the nine
months ended September 30, 1996, and $808,000, $609,000, and $691,000 for the
years ended December 31, 1996, 1995, and 1994, respectively, for rental income
from leased premises.
(Continued)
F-18.
<PAGE> 96
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 8 - INCOME TAXES
The provision for income taxes, included in the statements of income, consists
of the following:
<TABLE>
<CAPTION>
Nine months ended Year ended
(In thousands) September 30, December 31,
-------------------- -------------------------
1997 1996 1996 1995 1994
--------- --------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
Current
Federal $ 3,615 $ 2,922 $3,700 $ 2,390 $ 1,702
State 777 624 862 109 43
Deferred (329) (168) 35 652 (1,236)
--------- --------- ------ -------- -------
Total provision for income taxes $ 4,063 $ 3,378 $4,597 $ 3,151 $ 509
========= ========= ====== ======== =======
</TABLE>
The difference between the provision for income taxes in the financial
statements and amounts computed by applying the current federal income tax rate
of 34% to income before income taxes is reconciled as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
(In thousands) September 30, December 31,
-------------------- -------------------------
1997 1996 1996 1995 1994
--------- --------- ------ -------- -------
<S> <C> <C> <C> <C> <C>
Income taxes computed at the
statutory rate $ 3,516 $ 3,036 $4,048 $ 3,122 $ 820
Tax-exempt interest income on securities
and loans (219) (269) (375) (395) (306)
Non-deductible purchase accounting
adjustments 57 49 68 85 110
State income taxes, net of federal tax
benefit 702 569 833 365 (129)
Other 7 (7) 23 (26) 14
--------- --------- ------ -------- -------
Total provision for income taxes $ 4,063 $ 3,378 $4,597 $ 3,151 $ 509
========= ========= ====== ======== =======
</TABLE>
(Continued)
F-19.
<PAGE> 97
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 8 - INCOME TAXES (Continued)
The net deferred tax asset, included in other assets in the accompanying
balance sheets, consisted of the following components:
<TABLE>
<CAPTION>
(In thousands) December 31,
September 30, ------------------
1997 1996 1995
------------- -------- --------
<S> <C> <C> <C>
Gross deferred tax assets
Unrealized loss on securities available-for-sale $ - $ 875 $ -
Allowance for loan losses 2,317 1,752 1,220
State operating loss carryforwards 132 234 -
Other real estate 42 35 35
------------- -------- --------
Total gross deferred tax assets 2,491 2,896 1,255
Gross deferred tax liabilities
Depreciation (93) (109) (50)
Unrealized gain on securities available-for-sale (423) - (513)
Purchase accounting adjustments (3) (6) (5)
Deferred loan fees (174) (110) (57)
Other (96) - (81)
------------- -------- --------
Total gross deferred tax liabilities (789) (225) (706)
------------- -------- --------
Net deferred tax asset $ 1,702 $ 2,671 $ 549
============= ======== ========
</TABLE>
NOTE 9 - BORROWINGS
(In thousands)
Borrowings consisted of the following:
<TABLE>
<CAPTION>
December 31,
September 30, ------------------
Short-Term 1997 1996 1995
- ---------- ------------- -------- --------
<S> <C> <C> <C>
Federal Home Loan Bank (FHLB) advances to
subsidiary banks due January 3, 1997-
September 27, 1998, interest due monthly
at rates ranging from 5.55%-6.60%. $ 10,000 $ 6,300 $ -
Revolving line of credit ($18,000,000);
principal payments of $500,000 due
quarterly plus interest at the 30, 60, or
90 day LIBOR plus 100 basis points or
prime rate; remaining balance due on
May 1, 1998. Secured by all common stock
of the subsidiary banks. 12,850 14,350 15,350
</TABLE>
(Continued)
F-20.
<PAGE> 98
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 9 - BORROWINGS (Continued)
<TABLE>
<CAPTION>
(In thousands) December 31,
September 30, ------------------
1997 1996 1995
------------- -------- --------
<S> <C> <C> <C>
Revolving line of credit ($4,000,000);
interest payable quarterly at the 30, 60,
or 90 day LIBOR plus 100 basis points or
prime rate; secured by common stock of all
subsidiary banks; remaining balance due on
May 1, 1998. 3,846 1,545 352
------------- -------- --------
26,696 22,195 15,702
------------- -------- --------
Long-term
FHLB advances to subsidiary banks due at
various dates through June 18, 2002,
interest due monthly at rates ranging from
5.48% to 6.60%. 12,000 5,000 -
Note payable issued to purchase property
for Midwest Bank of Hinsdale; recorded at
an imputed interest rate of 11.61%;
principal payments of $75,000 due August
31 of each year through the year 2000. 225 300 375
------------- -------- --------
12,225 5,300 375
------------- -------- --------
Total borrowings $ 38,921 $ 27,495 $ 16,077
============= ======== ========
</TABLE>
Where required, the FHLB advances are secured by mortgage-backed securities
held by the respective banks (Note 3).
The $18,000,000 revolving line of credit is secured by the common stock of all
subsidiary banks of the Corporation and includes the following covenants: (1)
the Corporation must maintain tangible equity capital of at least $28,000,000;
(2) the Corporation must maintain a minimum ratio of equity capital to total
assets of 5%; (3) the banks must not have nonperforming loans in excess of 25%
of their primary capital; (4) the Corporation must earn a minimum consolidated
net income of $2,700,000; and (5) the Corporation shall not declare dividends
on an annual basis in excess of 25% of consolidated net income or $700,000.
The Corporation has complied with these covenants at September 30, 1997 and
December 31, 1996.
Total borrowings outstanding at September 30, 1997 mature as follows:
$26,771,000 in 1998, $2,075,000 in 1999, $7,075,000 in 2000, and $3,000,000 in
2002. Total borrowings outstanding at December 31, 1996 mature as follows:
$22,270,000 in 1997, $5,075,000 in 1998, $75,000 in 1999 and $75,000 in 2000.
(Continued)
F-21.
<PAGE> 99
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Corporation maintains a 401(k) salary reduction plan covering substantially
all employees. Eligible employees may elect to make tax deferred contributions
within a specified range of their compensation as defined in the plan. The
Bank contributes 1% more than the employee's contribution up to a 5%
contribution. Contributions to the plan are expensed currently and
approximated $238,000 and $214,000 for the nine months ended September 30, 1997
and 1996, respectively, and $288,000, $233,000, and $194,000 for the years
ended December 31, 1996, 1995, and 1994, respectively.
NOTE 11 - TIME DEPOSITS
Interest-bearing deposits, in denominations of $100,000 and over, approximated
$97,407,000 as of September 30, 1997, $79,354,000 as of December 31, 1996, and
$47,772,000 as of December 31, 1995. Interest expense related to deposits, in
denominations of $100,000 and over, approximated $2,265,000 for the nine months
ended September 30, 1997, $1,381,000 for the nine months ended September 30,
1996, $1,953,000 for 1996, $1,743,000 for 1995, and $1,559,000 for 1994.
The scheduled maturities of all certificates of deposit as of September 30,
1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
-------- --------
<S> <C> <C>
1997 $ 89,657 $290,068
1998 299,116 49,903
1999 19,966 8,433
2000 12,471 1,526
2001 1,275 317
2002 and thereafter 186 -
-------- --------
$422,671 $350,247
======== ========
</TABLE>
(Continued)
F-22.
<PAGE> 100
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 12 - LEASES
The subsidiary banks lease a portion of their banking premises and equipment.
The leases expire in various years through the year 2009. Future rental
commitments under these noncancelable operating leases as of September 30, 1997
and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
------ ------
<S> <C> <C>
1997 $ 82 $ 305
1998 327 305
1999 327 305
2000 327 305
2001 282 276
Thereafter 2,090 2,090
------ ------
$3,435 $3,586
====== ======
</TABLE>
Rental expense included in occupancy and equipment expense was $216,000 for the
nine months ended September 30,1997, $205,000 for the nine months ended
September 30, 1996, and $277,000, $234,000, and $303,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
(Continued)
F-23.
<PAGE> 101
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 13 - RELATED PARTY TRANSACTIONS
A summary of loans made by the subsidiary banks in the ordinary course of
business to or for the benefit of directors and executive officers of the
Corporation and the subsidiary banks is as follows:
(In thousands)
<TABLE>
<S> <C>
Balance at December 31, 1994 $ 7,460
New loans 4,581
Repayments (2,816)
-------
Balance at December 31, 1995 9,225
New loans 5,270
Repayments (4,463)
-------
Balance at December 31, 1996 10,032
New loans 5,179
Repayments (4,761)
-------
Balance at September 30, 1997 $10,450
=======
</TABLE>
NOTE 14 - CAPITAL MATTERS
The Corporation and its subsidiary banks are subject to regulatory capital
requirements administered by the federal banking agencies. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
banks must meet specific capital guidelines that involve quantitative measures
of assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices.
Quantitative measures established by regulation to ensure capital adequacy
require banks and bank holding companies to maintain minimum amounts and ratios
of total and Tier 1 capital to risk weighted assets and Tier 1 capital to
average assets. If banks do not meet these minimum capital requirements, as
defined, bank regulators can initiate certain actions that could have a direct
material effect on a bank's financial statements. Management believes, as of
September 30, 1997 and December 31, 1996, that the Corporation and its
subsidiary banks meet all capital adequacy requirements to which they are
subject.
(Continued)
F-24.
<PAGE> 102
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 14 - CAPITAL MATTERS (Continued)
As of September 30, 1997 and December 31, 1996, the most recent Federal Deposit
Insurance Corporation notification categorized the Corporation and its
subsidiary banks as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification
that management believes have changed the institutions' categories. To be
categorized as well capitalized, banks must maintain minimum total risk-based,
Tier 1 risk-based and Tier 1 leverage ratios. The actual capital amounts and
ratios for the Corporation and Midwest Bank and Trust Company, its largest
subsidiary, are presented in the following table.
<TABLE>
<CAPTION>
To be well capitalized
To be adequately under prompt corrective
Actual capitalized action provisions
-------------- ----------------- -------------------------
As of September 30, 1997 Amount Ratio Amount Ratio Amount Ratio
- ------------------------ ------ ----- -------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk weighted assets)
Corporation $53,857 10.5% $40,944 8.0% $51,180 10.0%
Midwest Bank 32,193 12.1 21,261 8.0 26,576 10.0
Tier 1 Capital
(to risk weighted assets)
Corporation 47,813 9.3 20,472 4.0 30,708 6.0
Midwest Bank 29,124 11.0 10,631 4.0 15,946 6.0
Tier 1 Capital
(to average assets)
Corporation 47,813 5.8 32,999 4.0 41,250 5.0
Midwest Bank 29,124 6.9 16,957 4.0 21,197 5.0
As of December 31, 1996
- -----------------------
Total capital
(to risk weighted assets)
Corporation $47,033 10.8% $34,840 8.0% $43,549 10.0%
Midwest Bank 30,659 13.0 18,896 8.0 23,620 10.0
Tier 1 capital
(to risk weighted assets)
Corporation 41,691 9.6 17,426 4.0 26,139 6.0
Midwest Bank 27,817 11.8 9,445 4.0 14,168 6.0
Tier 1 capital
(to average assets)
Corporation 41,691 5.8 29,016 4.0 36,271 5.0
Midwest Bank 27,817 7.5 14,875 4.0 18,594 5.0
</TABLE>
(Continued)
F-25.
<PAGE> 103
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 15 - RECAPITALIZATION
Effective December 17, 1997, the Corporation's Board of Directors increased the
number of authorized common shares by 11,000,000 shares, changed the par value
to $.01 per share and approved a two-for-one stock split effected in the form
of a 100% stock dividend in contemplation of an initial public offering of the
Corporation's common stock. All share and per share amounts included in the
financial statements have been restated to reflect the stock split.
NOTE 16 - OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
The Corporation is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet financing needs of customers. Since
many commitments to extend credit expire without being used, the amounts below
do not necessarily represent future cash commitments. These financial
instruments include commitments to extend credit, standby letters of credit,
and unused lines of credit and are summarized as follows as of September 30,
1997 and December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands)
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Financial instruments whose contract amounts
represent credit risk
Unused lines of credit $116,188 $92,931 $71,931
Commitments to extend credit 45,520 15,949 24,844
Standby letters of credit 6,384 6,047 5,951
</TABLE>
At September 30, 1997 and December 31, 1996 and 1995, commitments to extend
credit consisted of $3,094,000, $1,062,000, and $3,500,000 of fixed rate loan
commitments. These commitments are due to expire within 30 - 60 days of
issuance and have rates ranging from 5.83% to 10.25%.
The credit risk amounts represent the maximum accounting loss that would be
recognized at the reporting date if counterparties failed completely to perform
as contracted and any collateral or security proved to be of no value. Midwest
Banc has experienced little difficulty in accessing collateral when necessary.
The amounts of credit risk shown, therefore, greatly exceed expected losses.
The Corporation also had outstanding firm commitments to originate mortgage
loans and sell these loans to the secondary market approximating $1,383,000 at
September 30, 1997, $2,553,000 at December 31, 1996, and $2,684,000 at December
31, 1995.
(Continued)
F-26.
<PAGE> 104
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 17 - STOCK OPTION PLAN
During 1996, the Corporation's Board of Directors approved an incentive stock
compensation plan. The 1996 Stock Option Plan (the Plan) became effective on
November 19, 1996. Under the plan, officers, directors, and key employees may
be granted incentive stock options to purchase the Corporation's common stock
at no less than 100% of the market price on the date the option is granted.
Options generally become excercisable in installments of 25% a year on each of
the first through the fourth anniversaries of the grant date and have a maximum
term of ten years. The Plan also permits non qualified stock options to be
issued. The Corporation has authorized 500,000 shares for issuance under the
Plan. A total of 62,000 options were granted in 1996. No options have been
granted during the nine months ended September 30, 1997. The exercise price is
$8.125 a share. No options were exercised during the nine months ended
September 30, 1997 or during 1996.
The Corporation accounts for its stock option plan under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly,
no compensation expense has been recognized for the 1996 stock option plan in
the financial statements. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation", became effective for the first time
in 1996. This statement prescribes new methods for determining compensation
expense under stock option plans, but allows corporations to use APBO No. 25 if
they provide pro forma information computed under the new standard. Had
compensation cost been computed under the methodology contained in SFAS No.
123, net income would have been reduced by approximately $20,000 for the nine
months ended September 30, 1997 and $27,000 for the year ended December 31,
1996, with no effect on earnings per share. The fair value of the options
granted during 1996 is estimated at $2.22 on the date of grant using the
Black-Scholes options value model with the following assumptions: dividend
yield of 1.6%, a risk free interest rate of 6.5%, an assumed forfeiture rate of
0, and an average life of 5 years.
(Continued)
F-27.
<PAGE> 105
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 18 - PARENT COMPANY FINANCIAL STATEMENTS
The following are condensed balance sheets and statements of income and cash
flows for Midwest Banc Holdings, Inc., without subsidiaries:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands) December 31,
September 30, ----------------
1997 1996 1995
------------- ------- -------
<S> <C> <C> <C>
ASSETS
Cash $ 1,047 $ 736 $ 462
Investment in subsidiaries 62,325 56,117 52,528
Bank premises and equipment 289 258 257
Other assets 1,344 1,054 1,224
------------- ------- -------
Total assets $ 65,005 $58,165 $54,471
============= ======= =======
LIABILITIES
Borrowings $ 13,075 $14,650 $15,725
Other liabilities 939 553 359
------------- ------- -------
Total liabilities $ 14,014 $15,203 $16,084
============= ======= =======
SHAREHOLDERS' EQUITY
Common stock $ 110 $ 3,437 $ 3,437
Surplus 13,834 10,489 10,423
Retained earnings 40,909 34,932 28,174
Unrealized gain (loss) on securities
available-for-sale of subsidiary banks 675 (1,377) 807
Treasury stock, at cost (4,537) (4,519) (4,454)
------------- ------- -------
Total shareholders' equity 50,991 42,962 38,387
------------- ------- -------
Total liabilities and shareholders' equity $ 65,005 $58,165 $54,471
============= ======= =======
</TABLE>
(Continued)
F-28.
<PAGE> 106
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 18 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine months ended Year ended
(In thousands) September 30, December 31,
-------------------- --------------------------
1997 1996 1996 1995 1994
--------- --------- ------ --------- -------
<S> <C> <C> <C> <C> <C>
Operating income
Dividends from subsidiary banks $ 4,628 $ 4,352 $5,585 $ 5,379 $ 4,974
Fees from subsidiaries 824 770 1,005 809 687
Other income 1 1 2 4 13
--------- --------- ------ -------- -------
Total operating income 5,453 5,123 6,592 6,192 5,674
Operating expenses
Interest expense 737 788 1,048 1,117 856
Other expense 2,453 2,099 2,769 2,217 2,196
--------- --------- ------ -------- -------
Total operating expenses 3,190 2,887 3,817 3,334 3,052
--------- --------- ------ -------- -------
INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED INCOME (LOSS) OF SUBSIDIARIES 2,263 2,236 2,775 2,858 2,622
Income tax (benefit) (880) (654) (760) (917) (837)
--------- --------- ------ -------- -------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME (LOSS) OF SUBSIDIARIES 3,143 2,890 3,535 3,775 3,459
Equity in undistributed income (loss) of subsidiaries 3,135 2,660 3,773 2,257 (1,557)
--------- --------- ------ -------- -------
NET INCOME $ 6,278 $ 5,550 $7,308 $ 6,032 $ 1,902
========= ========= ====== ======== =======
</TABLE>
(Continued)
F-29.
<PAGE> 107
MIDWEST BANC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1997 and 1996
and for the nine-month periods then ended is unaudited)
NOTE 18 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended Year ended
(In thousands) September 30, December 31,
-------------------- ---------------------------
1997 1996 1996 1995 1994
--------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,278 $ 5,550 $7,308 $ 6,032 $ 1,902
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in undistributed (income) loss
of subsidiaries (3,135) (2,660) (3,773) (2,257) 1,557
Gain on sale of investment in non-
affiliate bank - - - - (5)
Depreciation 47 44 81 45 99
Decrease in other assets (410) (478) 169 186 21
Increase (decrease) in other liabilities 384 268 195 (140) 204
--------- --------- ------- --------- -------
Net cash provided by operating activities 3,164 2,724 3,980 3,866 3,778
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries (1,000) (1,750) (2,000) (3,100) (6,088)
Proceeds from sale of investment in non-
affiliate bank - - - - 118
Property and equipment expenditures (78) (16) (82) (182) (87)
--------- --------- ------- --------- -------
Net cash used in investing activities (1,078) (1,766) (2,082) (3,282) (6,057)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank borrowings - 250 250 11,175 6,150
Payments on bank borrowings (1,575) (802) (1,325) (8,650) (3,275)
Dividends paid (200) (300) (550) (566) (574)
Treasury stock sales (purchases), net - (83) 1 (2,749) (183)
--------- --------- ------- --------- -------
Net cash provided by (used in) financing
Activities (1,775) (935) (1,624) (790) 2,118
--------- --------- ------- --------- -------
Increase (decrease) in cash and cash equivalents 311 23 274 (206) (161)
Cash and cash equivalents at beginning of period 736 462 462 668 829
--------- --------- ------- --------- -------
Cash and cash equivalents at end of period $ 1,047 $ 485 $ 736 $ 462 $ 668
========= ========= ======= ========= =======
</TABLE>
F-30.
<PAGE> 108
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE AS OF WHICH INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-----------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Market for Common Stock and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . 17
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
-----------------
UNTIL _________, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
1,100,000 SHARES
[LOGO]
MIDWEST BANC HOLDINGS,
INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
HOWE BARNES INVESTMENTS, INC.
, 1998
================================================================================
<PAGE> 109
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this offering are as set
forth in the following table. All amounts except the SEC registration fee,
NASD filing fee and Nasdaq filing fee are estimated.
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,225
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,271
Nasdaq Listing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 11,325
Printing and Engraving Expenses . . . . . . . . . . . . . . . . . . . . 80,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 50,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 10,000
Transfer Agent's and Registrar's Fees and Expenses . . . . . . . . . 10,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,179
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 400,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law grants each corporation
organized thereunder the powers to indemnify any individual made party or
threatened to be made party to any threatened, pending or completed action,
suit or proceeding because the individual is or was a director, officer,
employee or agent of the corporation, against actual and reasonable expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
incurred with respect to an action, suit or proceeding if the individual acted
in good faith, and the individual reasonably believed: (i) that the
individual's conduct was in the corporation's best interests; (ii) that the
individual's conduct was at least not opposed to the corporation's best
interests; and (iii) in the case of any criminal proceeding, that the
individual had no reasonable cause to believe the individual's conduct was
unlawful. However, there will be limited or no indemnification for directors,
officers, employees or agents adjudged to be liable to the corporation where
such individuals are parties to any action by or in the right of the
corporation.
Article VIII of the By-Laws provides that the Company shall indemnify, to the
full extent empowered and permitted under the Delaware General Corporation Law,
any person made or threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the Company, or is or was serving at the Company's request
as a director, officer, employee or agent of another corporation or other
enterprise against liabilities and expenses reasonably incurred or paid by such
person in connection with such action, suit or proceeding. Expenses incurred
in defending a civil, criminal, administrative, investigative or other action,
suit or proceeding may be paid by the Company in advance of a final disposition
in accordance with the provision of Section 145 of the Delaware General
Corporation Law. The indemnification and advancement of expenses provided by
this By-Law provision shall not be deemed exclusive of any other rights to
which any person indemnified may be entitled under any by-law, statute,
agreement, vote of stockholders, or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be such director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such person. The Company may
purchase and maintain insurance on behalf of any person indemnified against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Company would have the
power to indemnify him against such liability under the By-Laws. The
provisions of the By-Laws are deemed a contract between the Company and each
director, officer, employee and agent who services in any such capacity at any
time while the By-Laws and relevant provisions of the Delaware General
Corporation Law, or other applicable law, if any, are in effect, and any repeal
or modification of any such law or of the By-Laws will not affect any
II-1
<PAGE> 110
right or obligations then existing with respect to any state of facts then
or theretofore existing or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon such state of
facts.
The effect of the foregoing provisions of the Delaware General Corporation
Law and the Company's Amended By-Laws would be to permit such indemnification
of officers and directors by the Company for liabilities arising under the
Securities Act of 1933.
Under its agreement with the Underwriters, the Company has agreed to
indemnify the Underwriters against certain civil liabilities under the
Securities Act.
Item 15. Recent Sales of Unregistered Securities.
From the period beginning January 1, 1995 through the date hereof, the
Company issued (i) 93,150 shares to Directors, employees, existing stockholders
of the Company and others at prices ranging from $5.00 per share to $9.50 per
share pursuant to Rule 504 of Regulation D under the Securities Act, and (ii)
40,888 shares to employees in connection with the Company's 401(k) plan at
prices ranging from $8.50 to $9.50 per share pursuant to Rule 701 under the
Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<S> <C> <C>
(a) Exhibits:
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation, as amended.
3.2 By-Laws, as amended.
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Vedder, Price, Kaufman & Kammholz.
10.1 $18.0 million Revolving Loan Agreement dated as of May 1, 1995, between the Company and LaSalle National
Bank, as amended.
10.2 $4.0 million Revolving Loan Agreement dated as of May 1, 1995, between Midwest One Mortgage Services, Inc.
and LaSalle National Bank.
10.3 Midwest Banc Holdings, Inc. 1996 Stock Option Plan.
10.4 Form of Transitional Employment Agreements.*
10.5 Lease dated as of December 24, 1958, between Western National Bank of Cicero and Midwest Bank and Trust
Company, as amended.
10.6 Britannica Centre Lease dated as of May 1, 1994, between Chicago Title and Trust Company, as Trustee
under Trust Agreement dated November 2, 1977, and known as Trust No. 1070932, and Midwest Bank & Trust
Company.
10.7 Lease dated as of March 20, 1996, between Grove Lodge No. 824 Ancient Free and Accepted Masons and Midwest
Bank of Hinsdale.
10.8 Office Lease undated between Grove Lodge No. 824 Ancient Free and Accepted Masons and Midwest Bank of
Hinsdale.
21.1 Subsidiaries.
23.1 Consent of Vedder, Price, Kaufman & Kammholz (included in their opinion filed as Exhibit 5.1).
23.2 Consent of Crowe, Chizek and Company LLP.
24.1 Power of Attorney (included on signature page).
(b) Financial Statement Schedules:
None
</TABLE>
- -----------------
*To be filed by amendment.
II-2
<PAGE> 111
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to Item 20 of this Registration Statement,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Melrose
Park, State of Illinois on the 16th day of December 1997.
MIDWEST BANC HOLDINGS, INC.
By: /s/ Robert L. Woods
-----------------------------------------
Robert L. Woods
President and Chief Executive Officer
Each person whose signature appears below constitutes and appoints
Robert L. Woods and Edward H. Sibbald his true and lawful attorneys-in-fact
and agents, each acting alone, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this registration statement, and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
order to effectuate such registration process, as fully for all intents and
purposes as he might or could do in person, thereby ratifying and confirming
all that said attorneys-in-fact and agents, and each of them, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ E. V. Silveri Chairman of the Board 12-16-97
- ---------------------------------
E. V. Silveri
/s/ Robert L. Woods Director, President and 12-16-97
- --------------------------------- Chief Executive Officer
Robert L. Woods
/s/ Angelo A. DiPaolo Director 12-16-97
- ---------------------------------
Angelo A. DiPaolo
/s/ Daniel Nagle Director 12-16-97
- ---------------------------------
Daniel Nagle
/s/ Joseph Rizza Director 12-16-97
- ---------------------------------
Joseph Rizza
/s/ LeRoy Rosasco Director 12-16-97
- ---------------------------------
LeRoy Rosasco
/s/ Robert D. Small Director 12-16-97
- ---------------------------------
Robert D. Small
/s/ Leon Wolin Director 12-16-97
- ---------------------------------
Leon Wolin
/s/ Edward H. Sibbald Executive Vice President 12-16-97
- --------------------------------- and Chief Financial Officer
Edward H. Sibbald
/s/ Daniel R. Kadolph Vice President and Comptroller 12-16-97
- ---------------------------------
Daniel R. Kadolph
</TABLE>
<PAGE> 113
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ --------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation, as amended.
3.2 By-Laws, as amended.
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Vedder, Price, Kaufman & Kammholz.
10.1 $18.0 million Revolving Loan Agreement dated as of May 1, 1995,
between the Company and LaSalle National Bank, as amended.
10.2 $4.0 million Revolving Loan Agreement dated as of May 1, 1995,
between Midwest One Mortgage Services, Inc. and LaSalle
National Bank.
10.3 Midwest Banc Holdings, Inc. 1996 Stock Option Plan.
10.4 Form of Transitional Employment Agreements.*
10.5 Lease dated as of December 24, 1958, between Western National
Bank of Cicero and Midwest Bank and Trust Company, as amended.
10.6 Britannica Centre Lease dated as of May 1, 1994, between Chicago
Title and Trust Company, as Trustee under Trust Agreement dated
November 2, 1977, and known as Trust No. 1070932, and Midwest
Bank & Trust Company.
10.7 Lease dated as of March 20, 1996, between Grove Lodge No. 824
Ancient Free and Accepted Masons and Midwest Bank of Hinsdale.
10.8 Office Lease undated between Grove Lodge No. 824 Ancient Free
and Accepted Masons and Midwest Bank of Hinsdale.
21.1 Subsidiaries.
23.1 Consent of Vedder, Price, Kaufman & Kammholz (included in their
opinion filed as Exhibit 5.1).
23.2 Consent of Crowe, Chizek and Company LLP.
24.1 Power of Attorney (included on signature page).
</TABLE>
- --------------
*To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
MIDWEST BANC HOLDINGS, INC.
1,100,000 Shares Common Stock*
UNDERWRITING AGREEMENT
____________, 1998
Howe Barnes Investments, Inc.
As Representative of the Several
Underwriters Named in Schedule A
135 South LaSalle Street
Chicago, Illinois 60603
Ladies and Gentlemen:
SECTION 1. Introductory. Midwest Banc Holdings, Inc. ("Company"), a
Delaware corporation, has an authorized capital stock consisting of 17,000,000
shares of Common Stock, $.01 par value ("Common Stock"), of which 10,015,898
shares were outstanding as of __________, 1998 and 1,000,000 shares of
Preferred Stock, $.01 par value, none of which were outstanding as of
__________, 1998. The Company proposes to issue and sell 1,100,000 shares of
its authorized but unissued Common Stock ("Firm Shares") to the several
underwriters named in Schedule A as it may be amended by the Pricing Agreement
hereinafter defined ("Underwriters"), who are acting severally and not jointly.
In addition, the Company proposes to grant to the Underwriters an option to
purchase up to 165,000 additional shares of Common Stock ("Option Shares") as
provided in Section 4 hereof. The Firm Shares and, to the extent such option
is exercised, the Option Shares, are hereinafter collectively referred to as
the "Shares."
You have advised the Company that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon as you deem
advisable after the registration statement hereinafter referred to becomes
effective, if it has not yet become effective, and the Pricing Agreement
hereinafter defined has been executed and delivered. The Underwriters shall
use their best efforts to sell the Shares to as many investors as possible,
provided that the maximum number of Shares sold to any purchaser in the
offering shall not exceed 50,000 and the number of Shares to be sold to
institutional investors shall not exceed 25% of the offering without the prior
written consent of the Company.
Prior to the purchase and public offering of the Shares by the several
Underwriters, the Company and you, as the Representative, acting on behalf of
the several Underwriters, shall enter into an agreement substantially in the
form of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may
take the form of an exchange of any standard form of written
- -----------------------
*Plus an option to acquire up to 165,000 additional shares to cover
overallotments.
<PAGE> 2
communication between the Company and the Representative and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Shares will be governed by this Agreement, as supplemented by
the Pricing Agreement. From and after the date of the execution and delivery of
the Pricing Agreement, this Agreement shall be deemed to incorporate the
Pricing Agreement.
The Company hereby confirms its agreement with the Underwriters as
follows:
SECTION 2. Representations and Warranties of the Company. The Company
represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-_____) and a
related preliminary prospectus with respect to the Shares have been
prepared and filed with the Securities and Exchange Commission
("Commission") by the Company in conformity with the requirements of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "1933 Act;" all references herein
to specific rules are rules promulgated under the 1933 Act); and the
Company has so prepared and has filed such amendments thereto, if any, and
such amended preliminary prospectuses as may have been required to the
date hereof. If the Company has elected not to rely upon Rule 430A, the
Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus. If the Company has
elected to rely upon Rule 430A, it will prepare and file a prospectus
pursuant to Rule 424(b) that discloses the information previously omitted
from the prospectus in reliance upon Rule 430A. There have been or will
promptly be delivered to you three signed copies of such registration
statement and amendments, three copies of each exhibit filed therewith,
and conformed copies of such registration statement and amendments (but
without exhibits) and copies of the related preliminary prospectus or
prospectuses and final forms of prospectus for each of the Underwriters.
Such registration statement (as amended, if applicable) at the time
it becomes effective and the prospectus constituting a part thereof
(including the information, if any, deemed to be part thereof pursuant to
Rule 430A(b) and/or Rule 434), as from time to time amended or
supplemented, are hereinafter referred to as the "Registration Statement"
and the "Prospectus," respectively, except that if any revised prospectus
shall be provided to the Underwriters by the Company for use in connection
with the offering of the Shares which differs from the Prospectus on file
at the Commission at the time the Registration Statement became or becomes
effective (whether or not such revised prospectus is required to be filed
by the Company pursuant to Rule 424(b)), the term Prospectus shall refer
to such revised prospectus from and after the time it was provided to the
Underwriters for such use. If the Company elects to rely on Rule 434 of
the 1933 Act, all references to "Prospectus" shall be deemed to include,
without limitation, the form of prospectus and the term sheet, taken
together, provided to the Underwriters by the Company in accordance with
Rule 434 of the 1933 Act ("Rule 434 Prospectus"). Any registration
statement (including any amendment or supplement thereto or information
which is deemed part thereof) filed by the Company
2
<PAGE> 3
under Rule 462(b ("Rule 462(b) Registration Statement") shall be
deemed to be part of the "Registration Statement" as defined herein,
and any prospectus (including any amendment or supplement thereto or
information which is deemed part thereof) included in such registration
statement shall be deemed to be part of the "Prospectus," as defined
herein, as appropriate. The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder are hereinafter
collectively referred to as the "Exchange Act."
(b) The Commission has not issued any order preventing or suspending
the use of any preliminary prospectus, and each preliminary prospectus has
conformed in all material respects with the requirements of the 1933 Act
and, as of its date, has not included any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein not misleading; and when the Registration Statement became or
becomes effective, and at all times subsequent thereto, up to the First
Closing Date or the Second Closing Date hereinafter defined, as the case
may be, the Registration Statement, including the information deemed to be
part of the Registration Statement at the time of effectiveness pursuant
to Rule 430A(b), if applicable, and the Prospectus and any amendments or
supplements thereto, contained or will contain all statements that are
required to be stated therein in accordance with the 1933 Act and in all
material respects conformed or will in all material respects conform to
the requirements of the 1933 Act, and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, included or
will include any untrue statement of a material fact or omitted or will
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however, that the
Company makes no representation or warranty as to information contained in
or omitted from any preliminary prospectus, the Registration Statement,
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter through the Representative specifically for use
in the preparation thereof.
(c) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective places of incorporation, with corporate
power and authority to own their respective properties and conduct their
respective businesses as described in the Prospectus; the Company and each
of its subsidiaries are duly qualified to do business as foreign
corporations under the corporation law of, and are in good standing as
such in, each jurisdiction in which such qualification is required except
in any such case where the failure to so qualify or be in good standing
would not have a material adverse effect upon the condition (financial or
otherwise) or results of operations of the Company and its subsidiaries
taken as a whole ("Material Adverse Effect"); and no proceeding of which
the Company has knowledge has been instituted in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail,
such power and authority or qualification.
(d) The Company owns directly or indirectly 100 percent of the issued
and outstanding capital stock of each of its subsidiaries, free and clear
of any claims, liens,
3
<PAGE> 4
encumbrances or security interests, except for any such stock pledged
against borrowings of the Company or any of its subsidiaries, and all
of such capital stock has been duly authorized and validly issued and is
fully paid and nonassessable.
(e) The issued and outstanding shares of capital stock of the Company
as set forth in the Prospectus have been duly authorized and validly
issued, are fully paid and nonassessable, and conform to the description
thereof contained in the Prospectus.
(f) The Shares have been duly authorized and when issued, delivered
and paid for pursuant to this Agreement, will be validly issued, fully
paid and nonassessable, and will conform to the description thereof
contained in the Prospectus.
(g) The making and performance by the Company of this Agreement and
the Pricing Agreement have been duly authorized by all necessary corporate
action and will not violate any provision of the Company's charter or
bylaws and will not result in the breach, or be in contravention, of any
provision of any agreement, franchise, license, indenture, mortgage, deed
of trust, or other instrument to which the Company or any subsidiary is a
party or by which the Company, any subsidiary or the property of any of
them may be bound or affected (for which any required waiver or consent
has not been obtained), or any order, rule or regulation applicable to the
Company or any subsidiary of any court or regulatory body, administrative
agency or other governmental body having jurisdiction over the Company or
any subsidiary or any of their respective properties, or any order of any
court or governmental agency or authority entered in any proceeding to
which the Company or any subsidiary was or is now a party or by which it
is bound, which breach or contravention would have a Material Adverse
Effect. No consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the Pricing
Agreement or the consummation of the transactions contemplated herein or
therein, except for compliance with the 1933 Act and blue sky laws
applicable to the public offering of the Shares by the several
Underwriters and clearance of such offering with the National Association
of Securities Dealers, Inc. ("NASD") except where the failure to obtain
such consents, approvals or authorizations would not have a Material
Adverse Effect. This Agreement has been and the Pricing Agreement will be
duly executed and delivered by the Company.
(h) The accountants who have expressed their opinions with respect to
certain of the financial statements and schedules included in the
Registration Statement are independent accountants as required by the 1933
Act.
(i) The consolidated financial statements of the Company included in
the Registration Statement present fairly the consolidated financial
position of the Company as of the respective dates of such financial
statements, and the consolidated results of operations and cash flows of
the Company for the respective periods covered thereby, are in conformity
with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed in the Prospectus.
The financial information set
4
<PAGE> 5
forth in the Prospectus under "Selected Consolidated Financial Data"
presents fairly, on the basis stated in the Prospectus, the information
set forth therein.
(j) Neither the Company nor any subsidiary is in violation of its
charter or in default under any consent decree, or in default with respect
to any provision of any lease, loan agreement, franchise, license, permit
or other contract obligation to which it is a party which would have a
Material Adverse Effect; and there does not exist any state of facts which
constitutes an event of default as defined in such documents or which,
with notice or lapse of time or both, would constitute such an event of
default, in each case, except for defaults which neither singly nor in the
aggregate would have a Material Adverse Effect.
(k) There are no legal or governmental proceedings pending, or to the
Company's knowledge, threatened to which the Company or any subsidiary is
or may be a party or of which property owned or leased by the Company or
any subsidiary is or may be the subject, or related to environmental or
discrimination matters which if adversely determined would have a Material
Adverse Effect that are not disclosed in the Prospectus, or which question
the validity of this Agreement or any action taken or to be taken pursuant
hereto or thereto.
(l) The Company is a bank holding company duly registered with the
Board of Governors of the Federal Reserve System ("Federal Reserve Board")
under the Bank Holding Company Act of 1956, as amended. The conduct of
the business of the Company and each of its subsidiaries is in compliance
in all respects with applicable federal, state, local and foreign laws and
regulations, except where the failure to be in compliance would not have a
Material Adverse Effect. The Company and its subsidiaries own or possess
or have obtained all governmental licenses, permits, consents, orders,
approvals and other authorizations necessary to lease or own, as the case
may be, and to operate their properties and to carry on their businesses
as presently conducted except where the failure to have obtained such
licenses, permits, consents, orders, approvals and other authorization
would not have a Material Adverse Effect, and neither the Company nor its
subsidiaries have received any notice of proceedings related to revocation
or modification of any such licenses, permits, consents, orders, approvals
or authorizations which singly or in the aggregate, if the subject of an
unfavorable ruling or finding, would result in a Material Adverse Effect.
Neither the Company nor any banking subsidiary is a party or subject to
any agreement or memorandum with, or directive or order issued by, the
Federal Reserve Board, the Office of Thrift Supervision, the Illinois
Commissioner of Banks and Real Estate or any other bank regulatory
authority, which imposes any restrictions or requirements not generally
applicable to bank holding companies or commercial banks.
(m) The Company and each of its subsidiaries have good and marketable
title to all the properties and assets reflected as owned in the financial
statements hereinabove described (or elsewhere in the Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except for
such properties as are pledged against the borrowings of the Company or
any of its subsidiaries and except those, if any, reflected in such
financial statements (or elsewhere in the Prospectus) or which are not
material to the Company and
5
<PAGE> 6
its subsidiaries taken as a whole. The Company and each of its
subsidiaries hold their respective leased properties which are material
to the Company and its subsidiaries taken as a whole under valid and
binding leases.
(n) The Company has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Shares.
(o) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
or contemplated therein, there has not been (i) any change in the
condition (financial or otherwise), earnings, affairs, business or
prospects of the Company or its subsidiaries, whether or not arising in
the ordinary course of business which has had a Material Adverse Effect,
(ii) any material transaction entered into, or any material liability or
obligation incurred, by the Company or its subsidiaries other than in the
ordinary course of business, (iii) any change in the capital stock, or
material increase in the short-term debt or long-term debt, or any
material change in the allowance for loan losses of the Company or its
subsidiaries, or (iv) any dividend or distribution of any kind declared,
paid or made by the Company on its capital stock.
(p) The Company agrees that, except for the Shares, it will not, for
a period of 180 days after this Agreement becomes effective without your
prior written consent: (1) offer, pledge, sell, contract to sell, sell
any option or contract to sell, sell any right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exchangeable for Common
Stock or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction is described
in clause (1) or (2) above is to be settled by delivery of Common Stock or
such other securities, in cash or otherwise. The Company has obtained
similar agreements from each of its executive officers and directors.
(q) There is no material contract or other document of a character
required to be described in the Registration Statement or the Prospectus
or to be filed as an exhibit to the Registration Statement which is not
described or filed as required.
(r) There are no holders of securities of the Company having rights
to registration thereof or preemptive rights to purchase Common Stock.
(s) All offers and sales of the Company's capital stock were exempt
from the registration requirements of, or duly registered under, the 1933
Act and were duly registered with or the subject of an available exemption
from the registration requirements of the applicable state securities or
blue sky laws.
6
<PAGE> 7
(t) The Company has filed all necessary federal and state income and
franchise tax returns and has paid all taxes shown as due thereon, and
there is no tax deficiency that has been or to the knowledge of the
Company, threatened to be asserted against the Company or any of its
properties or assets that would or could be expected to have a Material
Adverse Effect.
(u) The Company has filed a registration statement pursuant to
Section 12(g) of the Exchange Act to register the Common Stock thereunder,
has filed an application to list the Shares on the National Market System
of the National Association of Securities Dealers, Inc. Automated
Quotations System ("Nasdaq"), and has received notification that the
listing has been approved, subject to notice of issuance or sale of the
Shares, as the case may be.
(v) The Company is not, and does not intend to conduct its business
in a manner in which it would become, an "investment company" as defined
in Section 3(a) of the Investment Company Act of 1940, as amended
("Investment Company Act").
(w) The Company together with its subsidiaries owns and possesses all
right, title and interest in and to, or has duly licensed from third
parties, all patents, patent rights, trade secrets, inventions, know-how,
trademarks, trade names, copyrights, service marks and other proprietary
rights ("Trade Rights") material to the business of the Company and each
of its subsidiaries taken as a whole. Neither the Company nor any of its
subsidiaries has received any notice of infringement, misappropriation or
conflict from any third party as to such material Trade Rights which has
not been resolved or disposed of and to the Company's knowledge neither
the Company nor any of its subsidiaries has infringed, misappropriated or
otherwise conflicted with material Trade Rights of any third parties,
which infringement, misappropriation or conflict would have a Material
Adverse Effect.
(x) The Company confirms as of the date hereof that it is not doing
business in Cuba within the meaning of Section 1 of Laws of Florida,
Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba,
and the Company further agrees that if it commences engaging in business
with the government of Cuba or with any person or affiliate located in
Cuba after the date the Registration Statement becomes or has become
effective with the Commission or with the Florida Department of Banking
and Finance (the "Department"), whichever date is later, or if the
information reported in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes
in any material way, the Company will provide the Department notice of
such business or change, as appropriate, in a form acceptable to the
Department.
(y) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required
by this Agreement to be delivered to you was or will be, when made,
inaccurate, untrue or incorrect.
(z) Neither the Company nor its subsidiaries nor, to the Company's
knowledge, any employee or agent of the Company or its subsidiaries has
made any payment of funds
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<PAGE> 8
of the Company or its subsidiaries or received or retained any funds
in violation of any law, rule or regulation.
SECTION 3. Representations and Warranties of the Underwriters. The
Representative, on behalf of the several Underwriters, represents and warrants
to the Company that the information set forth (a) on the cover page of the
Prospectus with respect to price, underwriting discount and terms of the
offering, (b) the legends concerning stabilizing and passive market making
activities on the inside front cover page of the Prospectus, and (c) under
"Underwriting" in the Prospectus was furnished in writing to the Company by and
on behalf of the Underwriters specifically for use in connection with the
preparation of the Registration Statement and is correct and complete in all
material respects.
SECTION 4. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters named in Schedule A hereto, and the Underwriters agree, severally
and not jointly, to purchase the Firm Shares from the Company at the price per
share set forth in the Pricing Agreement. The obligation of each Underwriter
to the Company shall be to purchase from the Company the number of Shares set
forth opposite the name of such Underwriter in Schedule A hereto. The initial
public offering price and the purchase price shall be set forth in the Pricing
Agreement.
At 9:00 A.M., Chicago Time, on the fourth business day, if permitted under
Rule 15c6-1 under the Exchange Act, (or the third business day if required
under Rule 15c6-1 under the Exchange Act or unless postponed in accordance with
the provisions of Section 12) following the date the Pricing Agreement is
executed, or such other time not later than ten business days after such date
as shall be agreed upon by the Representative and the Company, the Company will
deliver to you at the offices of counsel for the Underwriters or through the
facilities of The Depository Trust Company for the accounts of the several
Underwriters, certificates representing the Firm Shares to be sold by it
against payment of the purchase price therefor by wire transfer or certified or
bank cashier's check in Chicago Clearing House funds (next-day funds) payable
to the order of the Company. Such time of delivery and payment is herein
referred to as the "First Closing Date." The certificates for the Firm Shares
so to be delivered will be in such denominations and registered in such names
as you request by notice to the Company prior to 10:00 A.M., Chicago Time, on
the second full business day preceding the First Closing Date, and will be made
available at the Company's expense for checking and packaging by the
Representative at 10:00 A.M., Chicago Time, on the full business day preceding
the First Closing Date. Payment for the Firm Shares so to be delivered shall
be made at the time and in the manner described above at the offices of counsel
for the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 165,000 Option
Shares, at the same purchase price per share to be paid for the Firm Shares,
for use solely in covering any overallotments made by the Underwriters in the
sale and distribution of the Firm Shares. The
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<PAGE> 9
option granted hereunder may be exercised at any time (but not more
than once) within 30 days after the date of the initial public offering upon
notice by you to the Company setting forth the aggregate number of Option
Shares as to which the Underwriters are exercising the option, the names and
denominations in which the certificates for such shares are to be registered
and the time and place at which such certificates will be delivered. Such time
of delivery (which may not be earlier than the First Closing Date), being
herein referred to as the "Second Closing Date," shall be determined by you,
but if at any time other than the First Closing Date, shall not be earlier than
three nor later than 10 full business days after delivery of such notice of
exercise. The number of Option Shares to be purchased by each Underwriter
shall be determined by multiplying the number of Option Shares to be sold by a
fraction, the numerator of which is the number of Firm Shares to be purchased
by such Underwriter as set forth opposite its name in Schedule A and the
denominator of which is the total number of Firm Shares (subject to such
adjustments to eliminate any fractional share purchases as you in your absolute
discretion may make). Certificates for the Option Shares will be made
available at the Company's expense for checking and packaging at 10:00 A.M.,
Chicago Time, on the first full business day preceding the Second Closing Date.
The manner of payment for and delivery of the Option Shares shall be the same
as for the Firm Shares as specified in the preceding paragraph.
You have advised the Company that each Underwriter has authorized you to
accept delivery of its Shares, to make payment and to receipt therefor. You,
individually and not as the Representative of the Underwriters, may make
payment for any Shares to be purchased by any Underwriter whose funds shall not
have been received by you by the First Closing Date or the Second Closing Date,
as the case may be, for the account of such Underwriter, but any such payment
shall not relieve such Underwriter from any obligation hereunder.
SECTION 5. Covenants of the Company. The Company covenants and agrees
that:
(a) The Company will advise you promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, or of any notification of the suspension of qualification of the
Shares for sale in any jurisdiction or the initiation or threatening of
any proceedings for that purpose, and will also advise you promptly of any
request of the Commission for amendment or supplement of the Registration
Statement, of any preliminary prospectus or of the Prospectus, or for
additional information.
(b) The Company will give you notice of its intention to file or
prepare any amendment to the Registration Statement (including any
post-effective amendment) or any Rule 462(b) Registration Statement or any
amendment or supplement to the Prospectus (including any revised
prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Shares which differs from the
prospectus on file at the Commission at the time the Registration
Statement became or becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) and any term
sheet as contemplated by Rule 434) and will furnish you with copies of any
such amendment or supplement a reasonable amount of time prior to such
proposed filing or use, as the case
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<PAGE> 10
may be, and will not file any such amendment or supplement or use any
such prospectus to which you or counsel for the Underwriters shall
reasonably object.
(c) If the Company elects to rely on Rule 434 of the 1933 Act, the
Company will prepare a term sheet that complies with the requirements of
Rule 434. If the Company elects not to rely on Rule 434, the Company will
provide the Underwriters with copies of the form of prospectus, in such
numbers as the Underwriters may reasonably request, and file with the
Commission such prospectus in accordance with Rule 424(b) of the 1933 Act
by the close of business in New York City on the second business day
immediately succeeding the date of the Pricing Agreement. If the Company
elects to rely on Rule 434, the Company will provide the Underwriters with
copies of the form of Rule 434 Prospectus, in such numbers as the
Underwriters may reasonably request, by the close of business in New York
on the business day immediately succeeding the date of the Pricing
Agreement.
(d) If at any time when a prospectus relating to the Shares is
required to be delivered under the 1933 Act any event occurs as a result
of which the Prospectus, including any amendments or supplements, would
include an untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus, including any amendments or supplements thereto and including
any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Shares which differs
from the prospectus on file with the Commission at the time of
effectiveness of the Registration Statement, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) to comply with
the 1933 Act, the Company promptly will advise you thereof and will
promptly prepare and file with the Commission an amendment or supplement
which will correct such statement or omission or an amendment which will
effect such compliance; and, in case any Underwriter is required to
deliver a prospectus nine months or more after the effective date of the
Registration Statement, the Company upon request, but at the expense of
such Underwriter, will prepare promptly such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section
10(a)(3) of the 1933 Act.
(e) Neither the Company nor any of its subsidiaries will, prior to
the earlier of the Second Closing Date or termination or expiration of the
related option, incur any material liability or obligation, direct or
contingent, or enter into any material transaction, other than in the
ordinary course of business, except as contemplated by the Prospectus.
(f) Neither the Company nor any of its subsidiaries will acquire any
capital stock of the Company prior to the earlier of the Second Closing
Date or termination or expiration of the related option nor will the
Company declare or pay any dividend or make any other distribution upon
the Common Stock payable to stockholders of record on a date prior to the
earlier of the Second Closing Date or termination or expiration of the
related option, except in either case in the ordinary course of business
or as contemplated by the Prospectus.
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<PAGE> 11
(g) Not later than May 15, 1999 the Company will make generally
available to its security holders an earnings statement (which need not be
audited) covering a period of at least 12 months beginning after the
effective date of the Registration Statement, which will satisfy the
provisions of the last paragraph of Section 11(a) of the 1933 Act.
(h) During such period as a prospectus is required by law to be
delivered in connection with offers and sales of the Shares by an
Underwriter or dealer, the Company will furnish to you at its expense,
subject to the provisions of subsection (d) hereof, copies of the
Registration Statement, the Prospectus, each preliminary prospectus and
all amendments and supplements to any such documents in each case as soon
as available and in such quantities as you may reasonably request, for the
purposes contemplated by the 1933 Act.
(i) The Company will cooperate with the Underwriters in qualifying
or registering the Shares for sale under the blue sky laws of such
jurisdictions as you designate, and will continue such qualifications in
effect so long as reasonably required for the distribution of the Shares.
The Company shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any such jurisdiction
where it is not currently qualified or where it would be subject to
taxation as a foreign corporation.
(j) During the period of five years hereafter, the Company will
furnish you with a copy (i) as soon as practicable after the filing
thereof, of each report filed by the Company with the Commission, any
securities exchange or the NASD; (ii) as soon as practicable after the
release thereof, of each material press release in respect of the Company;
and (iii) as soon as available, of each report of the Company mailed to
shareholders.
(k) The Company will use the net proceeds received by it from the
sale of the Shares in the manner specified in the Prospectus.
(l) If, at the time of effectiveness of the Registration Statement,
any information shall have been omitted therefrom in reliance upon Rule
430A and/or Rule 434, then immediately following the execution of the
Pricing Agreement, the Company will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A, Rule 424(b)
and/or Rule 434, copies of an amended Prospectus, or, if required by such
Rule 430A and/or Rule 434, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted. If required, the Company will prepare and file, or transmit for
filing, a Rule 462(b) Registration Statement not later than the date of
the execution of the Pricing Agreement. If a Rule 462(b) Registration
Statement is filed, the Company shall make payment of, or arrange for
payment of, the additional registration fee owing to the Commission
required by Rule 111.
(m) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act and Nasdaq.
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<PAGE> 12
SECTION 6. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective as
to all of its provisions or is terminated, the Company agrees to pay (i) all
costs, fees and expenses (other than legal fees and disbursements of counsel
for the Underwriters and the expenses incurred by the Underwriters) incurred in
connection with the performance of the Company's obligations hereunder,
including without limiting the generality of the foregoing, all fees and
expenses of legal counsel for the Company and of the Company's independent
accountants, all costs and expenses incurred in connection with the
preparation, printing, filing and distribution of the Registration Statement,
each preliminary prospectus and the Prospectus (including all exhibits and
financial statements) and all amendments and supplements provided for herein,
this Agreement, the Pricing Agreement and the Blue Sky Memorandum, (ii) all
costs, fees and expenses (including legal fees and disbursements of counsel for
the Underwriters not to exceed $10,000) incurred by the Underwriters in
connection with qualifying or registering all or any part of the Shares for
offer and sale under blue sky laws, including the preparation of a blue sky
memorandum relating to the Shares, and clearance of such offering with the
NASD; and (iii) all fees and expenses of the Company's transfer agent, printing
of the certificates for the Shares and all transfer taxes, if any, with respect
to the sale and delivery of the Shares to the several Underwriters.
SECTION 7. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm Shares
on the First Closing Date and the Option Shares on the Second Closing Date
shall be subject to the accuracy of the representations and warranties on the
part of the Company herein set forth as of the date hereof and as of the First
Closing Date or the Second Closing Date, as the case may be, to the accuracy of
the statements of officers of the Company made pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder, and to
the following additional conditions:
(a) The Registration Statement shall have become effective either
prior to the execution of this Agreement or not later than 1:00 P.M.,
Chicago Time, on the first full business day after the date of this
Agreement, or such later time as shall have been consented to by you but
in no event later than 1:00 P.M., Chicago Time, on the third full business
day following the date hereof; and prior to the First Closing Date or the
Second Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be
pending or, to the knowledge of the Company or you, shall be contemplated
by the Commission. If the Company has elected to rely upon Rule 430A
and/or Rule 434, the information concerning the initial public offering
price of the Shares and price-related information shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) within
the prescribed period and the Company will provide evidence satisfactory
to the Representative of such timely filing (or a post-effective amendment
providing such information shall have been filed and declared effective in
accordance with the requirements of Rules 430A and 424(b)). If a Rule
462(b) Registration Statement is required, such Registration Statement
shall have been transmitted to the Commission for filing and become
effective within the prescribed time period and, prior to the First
Closing Date, the Company
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<PAGE> 13
shall have provided evidence of such filing and effectiveness in
accordance with Rule 462(b).
(b) The Shares shall have been qualified for sale under the blue sky
laws of such states as shall have been reasonably specified by the
Representative.
(c) The legality and sufficiency of the authorization, issuance and
sale or transfer and sale of the Shares hereunder, the validity and form
of the certificates representing the Shares, the execution and delivery of
this Agreement and the Pricing Agreement, and all corporate proceedings
and other legal matters incident thereto, and the form of the Registration
Statement and the Prospectus (except financial statements) shall have been
approved by counsel for the Underwriters exercising reasonable judgment.
(d) You shall not have advised the Company that the Registration
Statement or the Prospectus or any amendment or supplement thereto,
contains an untrue statement of fact, which, in the opinion of counsel for
the Underwriters, is material or omits to state a fact which, in the
opinion of such counsel, is material and is required to be stated therein
or necessary to make the statements therein not misleading.
(e) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any material change, or any development involving
a prospective change, in or affecting particularly the business or
properties of the Company or its subsidiaries, whether or not arising in
the ordinary course of business, which, in the reasonable judgment of the
Representative, makes it impractical or inadvisable to proceed with the
public offering or purchase of the Shares as contemplated hereby.
(f) There shall have been furnished to you, as Representative of the
Underwriters, on the First Closing Date or the Second Closing Date, as the
case may be, except as otherwise expressly provided below:
(i) An opinion of Vedder, Price, Kaufman & Kammholz, counsel
for the Company, addressed to the Underwriters and dated the First
Closing Date or the Second Closing Date, as the case may be, to the
effect that:
(1) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the State of Delaware with corporate power and authority to
own its properties and conduct its business as described in
the Prospectus; and, to the best of such counsel's knowledge
the Company is duly qualified to do business as a foreign
corporation under the corporation law of, and is in good
standing as such in, every jurisdiction where such
qualification is required except where the failure so to
qualify would not have a Material Adverse Effect upon the
condition (financial or otherwise) or results of operations of
the Company and its subsidiaries taken as a whole;
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<PAGE> 14
(2) an opinion to the same general effect as clause (1)
of this subparagraph (i) in respect of each direct and
indirect subsidiary of the Company;
(3) the Company owns directly or indirectly 100 percent
of the outstanding capital stock of each subsidiary;
(4) the authorized capital stock of the Company, of which
there is outstanding the amount set forth in the Registration
Statement and Prospectus (except for subsequent issuances, if
any, pursuant to stock options or other rights referred to in
the Prospectus), conforms as to legal matters in all material
respects to the description thereof in the Registration
Statement and Prospectus;
(5) the issued and outstanding capital stock of the
Company has been duly authorized and validly issued and is
fully paid and nonassessable;
(6) the certificates for the Shares to be delivered
hereunder are in due and proper form, and when duly
countersigned by the Company's transfer agent and delivered to
you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of
this Agreement and the Pricing Agreement, the Shares
represented thereby will be duly authorized and validly
issued, fully paid and nonassessable;
(7) the Registration Statement has become effective under
the 1933 Act, and, to the best knowledge of such counsel, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the
1933 Act, and the Registration Statement (including the
information deemed to be part of the Registration Statement at
the time of effectiveness pursuant to Rule 430A(b) and/or Rule
434, if applicable), the Prospectus and each amendment or
supplement thereto (except for the financial statements and
other statistical or financial data included therein as to
which such counsel need express no opinion) comply as to form
in all material respects with the requirements of the 1933
Act; such counsel have no reason to believe that either the
Registration Statement (including the information deemed to be
part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b) and/or Rule 434, if
applicable) or the Prospectus, or the Registration Statement
or the Prospectus as amended or supplemented (except as
aforesaid), as of their respective effective or issue dates,
contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or
that the Prospectus as amended or supplemented, if applicable,
as of the First Closing Date or the Second Closing Date, as
the
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<PAGE> 15
case may be, contained any untrue statement of a material
fact or omitted to state any material fact necessary to make
the statements therein not misleading in light of the
circumstances under which they were made; and such counsel
does not know of any legal or governmental proceedings pending
or threatened required to be described in the Prospectus which
are not described as required, nor of any contracts or
documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are not described
or filed, as required;
(8) the statements under the captions "Description of
Capital Stock" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or
matters of law, are accurate summaries and fairly present, in
all material respects, the information called for with respect
to such documents and matters;
(9) this Agreement and the Pricing Agreement and the
performance of the Company's obligations hereunder have been
duly authorized by all necessary corporate action and this
Agreement and the Pricing Agreement have been duly executed
and delivered by and on behalf of the Company, and are legal,
valid and binding agreements of the Company, except as
enforceability of the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights and by the exercise of judicial
discretion in accordance with general principles applicable to
equitable and similar remedies and except as to those
provisions relating to indemnities and contribution for
liabilities arising under the 1933 Act as to which no opinion
need be expressed; and no approval, authorization or consent
of any public board, agency, or instrumentality of the United
States or of any state or other jurisdiction is necessary in
connection with the issue or sale of the Shares pursuant to
this Agreement (other than under the 1933 Act, applicable blue
sky laws and the rules of the NASD);
(10) the execution and performance of this Agreement will
not contravene any of the provisions of, or result in a
default under, any agreement, franchise, license, indenture,
mortgage, deed of trust, or other instrument known to such
counsel, of the Company or any of its subsidiaries or by which
the property of any of them is bound and which contravention
or default would be material to the Company and its
subsidiaries taken as a whole; or violate any of the
provisions of the charter or bylaws of the Company or any of
its subsidiaries or, so far as is known to such counsel,
violate any statute, order, rule or regulation of any
regulatory or governmental body having jurisdiction over the
Company or any of its subsidiaries; and
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<PAGE> 16
(11) the Company is not an "investment company" or a
person "controlled by" an "investment company" within the
meaning of the Investment Company Act.
In rendering such opinion, such counsel may state that insofar
as their opinion under clause (7) above relates to the accuracy and
completeness of the Prospectus and Registration Statement, it is
based upon a general review with the Company's representatives and
independent accountants of the information contained therein,
without independent verification by such counsel of the accuracy or
completeness of such information. Such counsel may also rely upon
the opinions of other competent counsel and, as to factual matters,
on certificates of officers of the Company and of federal or state
agencies or officials, in which case their opinion is to state that
they are so doing and copies of said opinions or certificates are to
be attached to the opinion unless said opinions or certificates (or,
in the case of certificates, the information therein) have been
furnished to the Representative in other form.
(ii) Such opinion or opinions of Chapman and Cutler, counsel
for the Underwriters, dated the First Closing Date or the Second
Closing Date, as the case may be, as to such matters as you may
reasonably require, and the Company shall have furnished to such
counsel such documents and shall have exhibited to them such papers
and records as they request for the purpose of enabling them to pass
upon such matters.
(iii) A certificate of the chief executive officer and the
principal financial officer of the Company, dated the First Closing
Date or the Second Closing Date, as the case may be, to the effect
that:
(1) the representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct, in
all material respects, as of the date of this Agreement and as
of the First Closing Date or the Second Closing Date, as the
case may be, and the Company has complied, in all material
respects, with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to such Closing Date; and
(2) the Commission has not issued an order preventing or
suspending the use of the Prospectus or any preliminary
prospectus filed as a part of the Registration Statement or
any amendment thereto; no stop order suspending the
effectiveness of the Registration Statement has been issued;
and to the best knowledge of the respective signers, no
proceedings for that purpose have been instituted or are
pending or contemplated under the 1933 Act.
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<PAGE> 17
The delivery of the certificate provided for in this
subparagraph shall be and constitute a representation and warranty
of the Company as to the facts required in the immediately foregoing
clauses (1) and (2) of this subparagraph to be set forth in said
certificate.
(iv) At the time the Pricing Agreement is executed and also on
the First Closing Date or the Second Closing Date, as the case may
be, there shall be delivered to you a letter addressed to you, as
Representative of the Underwriters, from Crowe, Chizek and Company
LLP, independent accountants, the first one to be dated the date of
the Pricing Agreement, the second one to be dated the First Closing
Date and the third one (in the event of a second closing) to be
dated the Second Closing Date, to the effect set forth in Schedule
B. There shall not have been any material change or decrease
specified in the letters referred to in this subparagraph which
makes it impractical or inadvisable in the reasonable judgment of
the Representative to proceed with the public offering or delivery
of the Shares as contemplated hereby or to attempt to enforce
contracts for purchase of the Shares.
(v) Such further certificates and documents as you may
reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Chapman and Cutler, counsel for the Underwriters, which approval shall not
be unreasonably withheld. The Company shall furnish you with such manually
signed or conformed copies of such opinions, certificates, letters and
documents as you request.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification to the Company
without liability on the part of any Underwriter or the Company, except for the
expenses to be paid or reimbursed by the Company pursuant to Sections 6 and 8
hereof and except to the extent provided in Section 10 hereof.
SECTION 8. Reimbursement of Underwriters' Expenses. If the sale to the
Underwriters of the Shares on the First Closing Date is not consummated because
any condition of the Underwriters' obligations hereunder is not satisfied or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or to comply with any provision hereof, unless
such failure to satisfy such condition or to comply with any provision hereof
is due to the default or omission of any Underwriter, the Company agrees to
reimburse you and the other Underwriters upon demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been reasonably incurred by you and them in connection with the proposed
purchase and the sale of the Shares. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section, Section 6 and Section 10 shall at all times be effective and shall
apply.
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SECTION 9. Effectiveness of Registration Statement. You and the Company
will use your and its best efforts to cause the Registration Statement to
become effective, if it has not yet become effective, and to prevent the
issuance of any stop order suspending the effectiveness of the Registration
Statement and, if such stop order be issued, to obtain as soon as possible the
lifting thereof.
SECTION 10. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the 1933 Act or the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject under the 1933 Act, the Exchange Act
or other federal or state statutory law or regulation, at common law or
otherwise (including in settlement of any litigation if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, including the information deemed
to be part of the Registration Statement at the time of effectiveness pursuant
to Rule 430A and/or Rule 434, if applicable, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that (i) any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
the Representative, specifically for use therein; or (ii) if such statement or
omission was contained or made in any preliminary prospectus and corrected in
the Prospectus and (1) any such loss, claim, damage or liability suffered or
incurred by any Underwriter (or any person who controls any Underwriter)
resulted from an action, claim or suit by any person who purchased Shares which
are the subject thereof from such Underwriter in the offering and (2) such
Underwriter failed to deliver or provide a copy of the Prospectus to such
person at or prior to the confirmation of the sale of such Shares in any case
where such delivery is required by the 1933 Act. In addition to its other
obligations under this Section 10(a), the Company agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 10(a), it will
reimburse the Underwriters on a quarterly basis for all reasonable legal and
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's obligation to reimburse the Underwriters for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is held by a court of competent jurisdiction to have been
improper, each recipient thereof will promptly return it to the
18
<PAGE> 19
Company. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the 1933 Act or the Exchange Act, against any losses, claims,
damages or liabilities to which the Company, or any such director, officer or
controlling person may become subject under the 1933 Act, the Exchange Act or
other federal or state statutory law or regulation, at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of such Underwriter), insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto in reliance upon any written
information furnished to the Company by such Underwriter through the
Representative specifically for use in the preparation thereof; and will
reimburse any legal or other expenses reasonably incurred by the Company, or
any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
This indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent that
the indemnifying party was prejudiced by such failure to notify. In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
all other indemnifying parties similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, or the indemnified and indemnifying
parties may have conflicting interests which would make it inappropriate for
the same counsel to represent both of them, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defense
and otherwise to participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of
such action and approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this Section for any
legal or other expenses subsequently
19
<PAGE> 20
incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defense in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Representative in the case of paragraph (a)
representing all indemnified parties not having different or additional
defenses or potential conflicting interests among themselves who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability arising out
of such proceeding.
(d) If the indemnification provided for in this Section is unavailable to
an indemnified party under paragraphs (a) or (b) hereof in respect of any
losses, claims, damages or liabilities referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Underwriters from the offering of the Shares or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company and the Underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company and
the Underwriters shall be deemed to be in the same proportion in the case of
the Company as the total price paid to the Company for the Shares by the
Underwriters (net of underwriting discount but before deducting expenses), and
in the case of the Underwriters as the underwriting discount received by them
bears to the total of such amounts paid to the Company and received by the
Underwriters as underwriting discount in each case as contemplated by the
Prospectus. The relative fault of the Company and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages and
liabilities referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the
20
<PAGE> 21
immediately preceding paragraph. Notwithstanding the provisions of
this Section, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section are several in
proportion to their respective underwriting commitments and not joint.
(e) The provisions of this Section shall survive any termination of the
Agreement.
SECTION 11. Default of Underwriters. It shall be a condition to the
agreement and obligation of the Company to sell and deliver the Shares
hereunder, and of each Underwriter to purchase the Shares hereunder, that,
except as hereinafter in this paragraph provided, each of the Underwriters
shall purchase and pay for all Shares agreed to be purchased by such
Underwriter hereunder upon tender to the Representative of all such Shares in
accordance with the terms hereof. If any Underwriter or Underwriters default
in their obligations to purchase Shares hereunder on the First Closing Date and
the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed 10 percent of the
total number of Shares which the Underwriters are obligated to purchase on the
First Closing Date, the Representative may make arrangements satisfactory to
the Company for the purchase of such Shares by other persons, including any of
the Underwriters, but if no such arrangements are made by such date the
nondefaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Shares which such defaulting
Underwriters agreed but failed to purchase on such date. If any Underwriter or
Underwriters so default and the aggregate number of Shares with respect to
which such default or defaults occur is more than the above percentage and
arrangements satisfactory to the Representative and the Company for the
purchase of such Shares by other persons are not made within 36 hours after
such default, this Agreement will terminate without liability on the part of
any nondefaulting Underwriter or the Company, except for the expenses to be
paid by the Company pursuant to Section 6 hereof and except to the extent
provided in Section 10 hereof.
In the event that Shares to which a default relates are to be purchased by
the nondefaulting Underwriters or by another party or parties, the
Representative or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used in this Agreement,
the term "Underwriter" includes any person substituted for an Underwriter under
this Section. Nothing herein will relieve a defaulting Underwriter from
liability for its default.
SECTION 12. Effective Date. This Agreement shall become effective
immediately as to all of its provisions upon execution and delivery of the
Pricing Agreement.
21
<PAGE> 22
SECTION 13. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by you prior to the First
Closing Date, and the option referred to in Section 4, if exercised, may
be cancelled at any time prior to the Second Closing Date, if (i) trading
in securities on the New York Stock Exchange shall have been suspended or
minimum prices shall have been established on such exchange, or (ii) a
banking moratorium shall have been declared by Illinois, New York, or
United States authorities, or (iii) there shall have been any material
adverse change in financial markets or in political, economic or financial
conditions from the date hereof which, in the opinion of the
Representative, either renders it impracticable or inadvisable to proceed
with the offering and sale of the Shares on the terms set forth in the
Prospectus or materially and adversely affects the market for the Shares,
or (iv) there shall have been an outbreak of major armed hostilities
between the United States and any foreign power which in the reasonable
opinion of the Representative makes it impractical or inadvisable to offer
or sell the Shares. Any termination pursuant to this paragraph (b) shall
be without liability on the part of any Underwriter to the Company or on
the part of the Company to any Underwriter (except for expenses to be paid
or reimbursed pursuant to Section 6 hereof and except to the extent
provided in Section 10 hereof).
SECTION 14. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and
payment for the Shares sold hereunder.
SECTION 15. Notices. All communications hereunder will be in writing and,
if sent to the Underwriters will be mailed, delivered or sent by facsimile
transmission and confirmed to you c/o Daniel E. Coughlin, Howe Barnes
Investments, Inc., 135 South LaSalle Street, Chicago, Illinois 60603, with a
copy to Matthew C. Boba, Chapman and Cutler, 111 West Monroe Street, Chicago,
Illinois 60603; and if sent to the Company will be mailed, delivered or
telegraphed and confirmed to the Company, Attention: Edward H. Sibbald at its
corporate headquarters with a copy to Steven J. Gray, Vedder, Price, Kaufman &
Kammholz, 222 North LaSalle Street, Chicago, Illinois 60601.
SECTION 16. Successors. This Agreement and the Pricing Agreement will
inure to the benefit of and be binding upon the parties hereto and their
respective successors, personal representatives and assigns, and to the benefit
of the officers and directors and controlling persons referred to in Section
10, and no other person will have any right or obligation hereunder. The term
"successors" shall not include any purchaser of the Shares as such from any of
the Underwriters merely by reason of such purchase.
22
<PAGE> 23
SECTION 17. Representation of Underwriters. You will act as
Representative for the several Underwriters in connection with this financing,
and any action under or in respect of this Agreement taken by you will be
binding upon all the Underwriters.
SECTION 18. Partial Unenforceability. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
SECTION 19. Applicable Law. This Agreement and the Pricing Agreement
shall be governed by and construed in accordance with the laws of the State of
Illinois.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters including you, all in accordance with its terms.
Very truly yours,
MIDWEST BANC HOLDINGS, INC.
By
-------------------------------
President
By
-------------------------------
Executive Vice President and
Chief Financial Officer
The foregoing Agreement is hereby
confirmed and accepted as of the date first
above written.
HOWE BARNES INVESTMENTS, INC.
Acting as Representative of the several
Underwriters named in Schedule A.
By
---------------------------
Senior Vice President
23
<PAGE> 24
SCHEDULE A
Number of Firm
Underwriter Shares to be
- ----------- Purchased
---------
Howe Barnes Investments, Inc.
---------
TOTAL........................................... 1,100,000
=========
<PAGE> 25
SCHEDULE B
Comfort Letter of Crowe, Chizek and Company LLP
(1) They are independent public accountants with respect to the Company
and its subsidiaries within the meaning of the 1933 Act.
(2) In their opinion the consolidated financial statements and schedules
of the Company and its subsidiaries included in the Registration Statement and
the consolidated financial statements of the Company from which the information
presented under the caption "Selected Consolidated Financial Data" has been
derived which are stated therein to have been examined by them comply as to
form in all material respects with the applicable accounting requirements of
the 1933 Act.
(3) On the basis of specified procedures (but not an examination in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company and its subsidiaries responsible for financial
and accounting matters as to transactions and events subsequent to December 31,
1997, a reading of minutes of meetings of the stockholders and directors of the
Company and its subsidiaries since December 31, 1997, a reading of the latest
available interim unaudited consolidated financial statements of the Company
and its subsidiaries (with an indication of the date thereof) and other
procedures as specified in such letter, nothing came to their attention which
caused them to believe that (i) the unaudited consolidated financial statements
of the Company and its subsidiaries included in the Registration Statement do
not comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act or that such unaudited consolidated financial
statements are not fairly presented in accordance with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited consolidated financial statements included in the Registration
Statement, and (ii) at a specified date not more than five days prior to the
date thereof in the case of the first letter and not more than two business
days prior to the date thereof in the case of the second and third letters,
there was any change in the capital stock or long-term debt or short-term debt
(other than normal payments) of the Company and its subsidiaries on a
consolidated basis or any decrease in the total assets or shareholder's equity
or allowance for loan losses of the Company and its subsidiaries on a
consolidated basis as compared with amounts shown on the latest unaudited
balance sheet of the Company included in the Registration Statement or for the
period from the date of such balance sheet to a date not more than five days
prior to the date thereof in the case of the first letter and not more than two
business days prior to the date thereof in the case of the second and third
letters, there were any decreases, as compared with the corresponding period of
the prior year, in net interest income, total other income, income before
income tax expense, net income and net income per share of the Company and its
subsidiaries on a consolidated basis except, in all instances, for changes or
decreases which the Prospectus discloses have occurred or may occur or which
are set forth in such letter.
(4) They have carried out specified procedures, which have been agreed to
by the Representative, with respect to certain information in the Prospectus
specified by the Representative, and on the basis of such procedures, they have
found such information to be in agreement with the general accounting records
of the Company, its subsidiaries or other entities.
<PAGE> 26
EXHIBIT A
Midwest Banc Holdings, Inc.*
1,100,000 Shares Common Stock
PRICING AGREEMENT
____________, 1998
Howe Barnes Investments, Inc.
As Representative of the Several
Underwriters
135 South LaSalle Street
Chicago, Illinois 60603
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated __________, 1998
(the "Underwriting Agreement") relating to the sale by the Company and the
purchase by the several Underwriters for whom Howe Barnes Investments, Inc. is
acting as Representative (the "Representative"), of the above Shares. All
terms herein shall have the definitions contained in the Underwriting Agreement
except as otherwise defined herein.
Pursuant to Section 4 of the Underwriting Agreement, the Company agrees
with the Representative as follows:
1. The initial public offering price per share for the Shares shall be
$__________.
2. The purchase price per share for the Shares to be paid by the several
Underwriters shall be $__________, being an amount equal to the initial public
offering price set forth above less $__________ per share.
- ---------------------
* Plus an option to acquire up to 165,000 additional shares to cover
overallotments.
<PAGE> 27
Schedule A is amended as follows:
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters, including you, all in accordance with its terms.
Very truly yours,
MIDWEST BANC HOLDINGS, INC.
By
---------------------------------
President
By
---------------------------------
Executive Vice President and
Chief Financial Officer
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
HOWE BARNES INVESTMENTS, INC.
Acting as Representative of the
Several Underwriters.
By
-----------------------------
Senior Vice President
2
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
FIRST MIDWEST CORPORATION OF DELAWARE
FIRST MIDWEST CORPORATION OF DELAWARE, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: The board of directors of the Corporation adopted resolutions
proposing and declaring advisable the following amendments to the Restated
Certificate of Incorporation of the Corporation:
RESOLVED, that Section 1 of the Restated Certificate of
Incorporation of the Corporation be amended to read in its
entirety as follows:
"1. The name of the corporation is: Midwest Banc Holdings, Inc."
FURTHER RESOLVED, that Section 4 of the Restated Certificate of
Incorporation of the Corporation be amended to read in its entirety as
follows:
"4. The total number of shares of stock which the corporation shall
have authority to issue is eighteen million (18,000,000), divided
into two classes as follows: one million (1,000,000) of which shall
be preferred stock, no par value ("Preferred Stock"), and seventeen
million (17,000,000) of which shall be common stock, no par value
("Common Stock").
The designations, powers, preferences and rights, and
the qualifications, limitations or restrictions of the above
classes of stock are as follows:
<PAGE> 2
CLASS I: PREFERRED STOCK
1. The Board of Directors is expressly authorized at
any time, and from time to time, to issue shares of
Preferred Stock in one or more series, and for such
consideration as the Board of Directors may determine, with
such voting powers, full or limited but not to exceed one
vote per share, or without voting powers, and with such
designations, preferences and relative, participating,
optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated in
the resolution or resolutions providing for the issue
thereof, and as are not stated in this Restated Certificate
of Incorporation, or any amendment thereto. All shares of
any one series shall be of equal rank and identical in all
respects.
2. No dividend shall be paid or declared on any
particular series of Preferred Stock unless dividends shall
be paid or declared pro rata on all shares of Preferred
Stock at the time outstanding of each other series which
ranks equally as to dividends with such particular series.
3. Unless and except to the extent otherwise required
by law or provided in the resolution or resolutions of the
Board of Directors creating any series of Preferred Stock
pursuant to this Class I, the holders of the Preferred Stock
shall have no voting power with respect to any matter
whatsoever. In no event shall the Preferred Stock be
entitled to more than one vote in respect of each share of
stock. Subject to the protective conditions or restrictions
of any outstanding series of Preferred Stock, any amendment
to this Certificate of Incorporation which shall increase or
decrease the authorized capital stock of any class or
classes may be adopted by the affirmative vote of the
holders of a majority of the outstanding shares of voting
stock of the Corporation.
4. Shares of Preferred Stock redeemed, converted,
exchanged, purchased, retired or surrendered to the
corporation, or which have been issued and reacquired in any
manner, shall, upon compliance with any applicable
provisions of the Delaware General Corporation Law, have the
status of authorized and unissued shares of Preferred Stock
and may be reissued by the Board of Directors as part of the
series of which they were originally a part or may be
reclassified into and reissued as part of a new series or as
part of any other series, all subject to the protective
conditions or restrictions of any outstanding series of
Preferred Stock.
CLASS II: COMMON STOCK
1. Subject to preferential dividend rights, if any,
applicable to shares of the Preferred Stock and subject to
applicable requirements, if any, with
2
<PAGE> 3
respect to the setting aside of sums for purchase, retirement or
sinking funds for the Preferred Stock, the holder of the Common
Stock shall be entitled to receive to the extent permitted by
law, such dividends as may be declared from time to time by the
Board of Directors.
2. In the event of the voluntary or involuntary
liquidation, dissolution, distribution of assets or winding
up of the Corporation, after distribution in full of the
preferential amounts, if any, to be distributed to the
holders of shares of the Preferred Stock, holders of the
Common Stock shall be entitled to receive all the remaining
assets of the Corporation of whatever kind available for
distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively.
3. Except as may be otherwise required by law or this
Certificate of Incorporation, each holder of the Common
Stock shall have one vote in respect of each share of stock
held by him or her of record on the books of the corporation
on all matters voted upon by the stockholders."
FURTHER RESOLVED, that Section 9 of the Restated Certificate
of Incorporation of the Corporation be amended to read in its
entirety as follows:
9. No action required to be taken or which may
be taken at any annual or special meeting of the
stockholders of the Corporation may be taken without
an annual or special meeting of the stockholders, and
the power of stockholders to consent in writing,
without a meeting, to the taking of any action is
specifically denied."
FURTHER RESOLVED, that Section 12 of the Restated Certificate
of Incorporation of the Corporation be amended to read in its
entirety as follows:
12. Notwithstanding any other provision of this
Certificate of Incorporation or the By-laws
of the corporation to the contrary and notwithstanding
that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least two-thirds
(2/3) of the voting power of the outstanding shares of
all classes of stock of the Corporation, voting
together as a single class, shall be required to amend
or repeal, or adopt any provision inconsistent with
Sections 9 and 12 of this Restated Certificate of
Incorporation."
SECOND: That in lieu of a meeting and vote of the Corporation's
stockholders, a majority of the Corporation's stockholders have given their
written consent to said amendments in accordance with the provisions of Section
228 of the General Corporation Law of the State of Delaware and the
3
<PAGE> 4
non-consenting stockholders have been notified in accordance with Section 228
of the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendments were duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE> 5
IN WITNESS WHEREOF, FIRST MIDWEST CORPORATION OF DELAWARE has caused this
Certificate to be signed by Robert L. Woods, its President, and attested to by
Daniel Nagle, its Secretary, this 9 day of December, 1997.
FIRST MIDWEST CORPORATION
OF DELAWARE
By: /s/ Robert L. Woods
------------------------
Name: Robert L. Woods
Its: President
ATTEST:
By: /s/ Daniel Nagle
--------------------------
Name: Daniel Nagle
Its: Secretary
5
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FIRST MIDWEST CORPORATION OF DELAWARE
First Midwest Corporation of Delaware, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware;
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of First Midwest Corporation of
Delaware, by the vote of a majority of its members at a meeting duly held and
constituted, duly adopted resolutions setting forth a proposed amendment to the
Certificate of Incorporation of said corporation, declaring said amendment to
be advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED, that Section 4 of the Restated Certificate of
Incorporation of the Corporation be amended to read in its
entirety as follows:
4. The total number of shares of stock which the
corporation shall have authority to issue is six
million (6,000,000), all of which shall be common
stock, $.625 par value per share.
SECOND: That such amendment has been duly adopted in accordance with
provisions of the General Corporation Law of the State of Delaware by the
affirmative vote of the holders of a majority of all outstanding stock entitled
to vote at a meeting of stockholders.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, First Midwest Corporation of Delaware has caused this
Certificate to be signed and attested as of April 4, 1996.
FIRST MIDWEST CORPORATION OF DELAWARE
By: /s/ Robert L. Woods
--------------------------------
Robert L. Woods, President
ATTEST:
By: /s/ Daniel Nagle
-------------------------------
Daniel Nagle, Secretary
<PAGE> 7
RESTATED
CERTIFICATE OF INCORPORATION
OF
FIRST MIDWEST CORPORATION OF DELAWARE
It is hereby certified that:
1. (a) The present name of the corporation (hereinafter called the
"corporation") is FIRST MIDWEST CORPORATION OF DELAWARE.
(b) The name under which the corporation was originally incorporated is
FIRST MIDWEST CORPORATION, and the date of filing the original certificate of
incorporation of the corporation with the Secretary of State of the State of
Delaware is March 17, 1983.
2. The certificate of incorporation of the corporation is hereby amended
by adding a new section 13 thereto, which new section is set forth in the
Restated Certificate of Incorporation hereinafter provided for.
3. The provisions of the certificate of incorporation of the corporation
as heretofore amended and/or supplemented, and as herein amended, are hereby
restated and integrated into the single instrument which is hereinafter set
forth, and which is entitled Restated Certificate of Incorporation of FIRST
MIDWEST CORPORATION OF DELAWARE without any further amendment other than the
amendment herein certified and without any discrepancy between the provisions
of the certificate of incorporation as heretofore amended and supplemented and
the provisions of the said single instrument hereinafter set forth.
<PAGE> 8
4. The amendment and the restatement of the restated certificate of
incorporation herein certified have been duly adopted by the stockholders in
accordance with the provisions of Section 242 and of Section 245 of the General
Corporation Law of the State of Delaware.
5. The certificate of incorporation of the corporation, as amended and
restated herein, shall at the effective time of this Restated Certificate of
Incorporation read as follows:
RESTATED CERTIFICATE OF INCORPORATION
OF
FIRST MIDWEST CORPORATION OF DELAWARE
1. The name of the corporation is:
FIRST MIDWEST CORPORATION OF DELAWARE
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 West Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
4. The total number of shares of stock which the corporation shall
have authority to issue is four million (4,000,000) and the par value of
each such share is One and 25/100 Dollars ($1.25) amounting in the
aggregate to Five Million Dollars ($5,000,000)
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5. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
Robert L. Woods 1606 North Harlem
Elmwood Park, Illinois 60635
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized and empowered, in the manner provided in the By-Laws of the
corporation, to make, alter, amend and repeal the By-laws of the
corporation in any respect not inconsistent with the laws of the State of
Delaware or with the Certificate of Incorporation.
In addition to the powers and authorities hereinbefore or by the
statute expressly conferred upon it, the Board of Directors may exercise
all such powers and do all such acts as may be exercised or done by the
corporation, subject, nevertheless, to the provisions of the laws of the
State of Delaware, this Certificate of Incorporation and the By-Laws of
the corporation.
Any contract, transaction or act of the corporation or of the
directors or of any committee which shall be ratified by the holders of a
majority of the shares of stock of the corporation present in person or
by proxy and voting at any annual meeting, or at any special meeting
called for such purpose, shall, insofar as permitted by law or by this
Certificate of Incorporation, be as valid and as binding as though
ratified by every stockholder of the corporation.
8. Elections of directors need not be by written ballot unless the
By-laws of the corporation shall so provide.
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Meetings of stockholders may be held within or without the State of
Delaware, as the By-laws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time
to time by the board of directors or in the By-laws of the corporation.
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this corporation of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this corporation under the provisions of Section 291 of
Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this
corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation,
as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class
of stockholders of this corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this corporation
as consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court
to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class
of stockholders, of this corporation, as the case may be, and also on
this corporation.
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9. Any action required by the laws of the State of Delaware, this
Certificate of Incorporation or the By-Laws of the corporation to be
taken at any annual or special meeting of the stockholders of the
corporation, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of a majority of the
stock or a greater percentage where required by the laws of the State of
Delaware, this Certificate of Incorporation or the By-Laws of the
corporation; provided that prompt notice of the taking of such action
must be given to those stockholders who have not consented in writing.
10. A director of the corporation shall not in the absence of fraud
be disqualified by his office from dealing or contracting with the
corporation either as a vendor, purchaser or otherwise nor in the absence
of fraud shall a director of the corporation be liable to account to the
corporation for any profit realized by him from or through any
transaction or contract of the corporation by reason of the fact that he,
or any firm of which he is a member, or any corporation of which is an
officer, director or stockholder, was interested in such transaction or
contract if such transaction or contract has been authorized, approved or
ratified in the manner provided in the General Corporation Law of
Delaware for authorization, approval or ratification of transactions or
contracts between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of
its directors or officers are directors or officers, or have a financial
interest.
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11. The corporation shall, to the full extent permitted by Section
145 of the Delaware General Corporation Law, as amended from time to
time, indemnify all persons who it may indemnify pursuant thereto.
12. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to this
reservation.
13. No director of the corporation shall be personally liable to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided, however, that this provision
shall not eliminate or limit the liability of a director (i) for any
breach of a director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii)
under Section 174 of the Delaware General Corporation Law; or (iv) for
any transaction for which the director derived an improper personal
benefit.
THE UNDERSIGNED, does make this certificate, hereby declaring and
certifying that this is his act and deed and the facts herein stated are true,
and accordingly has hereunto set his hand this 7th day of April, 1995.
/s/ Robert L. Woods
----------------------
Robert L. Woods
President
ATTEST:
/s/ Daniel Nagle
- ----------------------
Daniel Nagle
Secretary
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EXHIBIT 3.2
AS AMENDED THROUGH DECEMBER 18, 1997
MIDWEST BANC HOLDINGS, INC.
BY-LAWS
ARTICLE I
OFFICES AND REGISTERED AGENT
Section 1.1 Registered Office and Agent. Midwest Banc Holdings, Inc.
(the "Corporation") shall have and continuously maintain a registered office in
the City of Wilmington, County of New Castle, State of Delaware, and a
registered agent having a business office identical with such registered
office.
Section 1.2 Corporation's Principal Office in Illinois. The
Corporation's principal office in Illinois is located at Midwest Centre, 501
West North Avenue, Melrose Park, IL 60160.
Section 1.3 Other Offices. The Corporation may also have such other
office or offices both in and outside of Delaware as the Board of Directors may
determine or as the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 2.1 Annual Meeting. An annual meeting of the stockholders shall
be held on the first Wednesday in May of each year, at the hour of 2:00 p.m.,
or in the event the annual meeting is not so held on such date or at such time,
then on the day and at the time designated by the Board of Directors and stated
in the notice of the meeting, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday, such meeting shall be
held on the next succeeding business day.
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If the directors shall not be elected at the annual meeting, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
as soon thereafter as may be convenient.
Section 2.2 Special Meetings. Special meetings of the stockholders
may be called at any time by the Chairman or the President, and shall be called
by the President or Secretary at the request, in writing, of a majority of the
Board of Directors. Such request shall state the purpose or purposes of the
proposed meeting.
Section 2.3 Place of Meetings. Meetings of stockholders, whether
annual or special, shall be held at such time and place as may be determined by
the Board of Directors and designated in the notice or waiver of notice of such
meeting; provided, that a waiver of notice signed by all stockholders may
designate any time or any place as the time and place for the holding of such
meeting. If no designation is made, the place of meeting shall be the principal
office of the Corporation in Illinois.
Section 2.4 Notice of Meetings. Written or printed notice stating the
place, date and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than sixty days before the date of the meeting, or in the case
of a merger or consolidation, share exchange, dissolution or sale, lease or
exchange of all or substantially all of the assets of the Corporation, other
than in the usual and regular course of business, at least twenty days before
the date of the meeting, either personally or by mail, by or at the direction of
the Chairman, the President, the Secretary or the persons calling the meeting,
to each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
with postage thereon prepaid, addressed to the stockholder at his address as it
appears on the records of the Corporation.
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Section 2.5 Fixing of Record Date or Otherwise Determining
Stockholders. For the purpose of determining stockholders entitled to notice of
or to vote at any meeting of stockholders, or stockholders entitled to receive
payment of any dividend, or in order to make a determination of stockholders for
any other proper purpose, the Board of Directors may fix in advance a date as
the record date for any such determination of stockholders, such date in any
case to be not more than sixty days and, for a meeting of stockholders, not less
than ten days, or in the case of a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of all or substantially all of the
assets of the Corporation other than in the usual and regular course of
business, not less than twenty days, immediately preceding such meeting. If no
record date is fixed for the determination of stockholders entitled to notice of
or to vote at a meeting of stockholders, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the date on which notice
is given or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. If no record date is fixed for
the determination of stockholders entitled to receive payment of a dividend, the
date on which the resolution of the Board of Directors declaring such dividend
is adopted shall be the record date for such determination of stockholders. When
a determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this Section, such determination shall apply to any
adjournment thereof, provided, however, that the Board of Directors may fix a
new record date for the adjourned meeting.
Section 2.6 List of Stockholders Entitled to Vote. The officer who
has charge of the stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in
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alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, for a period of at least ten days prior to the meeting, either a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of the
stockholders, the corporate books, or to vote at any meeting of the
stockholders.
Section 2.7 Quorum and Manner of Acting. Unless otherwise provided by
the Certificate of Incorporation or these By-laws, a majority of the outstanding
shares of the Corporation, entitled to vote on a matter, represented in person
or by proxy, shall constitute a quorum for consideration of such matter at any
meeting of stockholders; provided, that if less than a majority of the
outstanding shares entitled to vote on a matter are represented at said meeting,
a majority of the shares so represented may adjourn the meeting from time to
time without further notice other than announcement at the meeting at which the
adjournment is taken of the time and place of the adjourned meeting. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. If a quorum is present,
the affirmative vote of the majority of the shares represented at the meeting
and entitled to vote shall be the act of the stockholders, unless the vote of a
greater number or voting by
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classes is required by the Delaware General Corporation Law, the Certificate
of Incorporation or these By-laws. Withdrawal of stockholders from any
meeting shall not cause failure of a duly constituted quorum at that meeting.
Section 2.8 Voting Shares and Proxies. Each stockholder shall be
entitled to one vote for each share of capital stock held by such stockholder,
except as otherwise provided in the Certificate of Incorporation. Each
stockholder entitled to vote shall be entitled to vote in person, or may
authorize another person or persons to act for him by proxy executed in writing
by such stockholder or by his duly authorized attorney-in-fact, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period.
Section 2.9 Inspectors. At any meeting of stockholders, the chairman
of the meeting may, or upon the request of any stockholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain
and report the number of shares represented at the meeting, based upon the list
of stockholders produced at the meeting in accordance with Section 2.6 hereof
and upon their determination of the validity and effect of proxies, and they
shall count all votes, report the results and do such other acts as are proper
to conduct the election and voting with impartiality and fairness to all the
stockholders. Each such report shall be in writing and signed by at least a
majority of the inspectors, the report of a majority being the report of the
inspectors, and such reports shall be prima facie evidence of the number of
shares represented at the meeting and the result of a vote of the stockholders.
Section 2.10 Voting of Shares by Certain Holders. Shares of its own
stock belonging to the Corporation, unless held by it in a fiduciary capacity,
shall not be counted in determining the total number of outstanding shares at
any given time. Shares standing in the name of another corporation,
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domestic or foreign, may be voted by such officer, agent or proxy as
the by-laws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine. Persons
holding stock in a fiduciary capacity shall be entitled to vote the shares so
held. Persons whose stock is pledged shall be entitled to vote, unless in the
transfer by the pledgor on the books of the Corporation he expressly empowered
the pledgee to vote thereon, in which case only the pledgee, or his proxy, may
represent such stock and vote thereon.
Section 2.11 Action by Stockholders. Any action required to be taken
or which may be taken at a meeting of stockholders must be effected at a duly
called annual or special meeting of the stockholders of the Corporation, and the
power of stockholders to consent in writing, without a meeting, to the taking of
any action is specifically denied.
Section 2.12 Notice of Stockholder Business. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before the annual
meeting of stockholders, business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board,
(b) otherwise properly brought before the meeting by or at the direction of the
Board, or (c) otherwise properly brought before the meeting by a stockholder.
For business to be properly brought before an annual meeting of the
stockholders, the stockholder must have the legal right and authority to make
the proposal for consideration at the meeting and the stockholder must have
given timely notice thereof in writing to the President of the Corporation. To
be timely, a stockholder's written notice of intent to make a proposal or
proposals must be personally delivered to or mailed by United States mail,
postage prepaid and received by the President of the Corporation at the
principal executive offices of the Corporation not less than 120 days prior to
the meeting; provided however, that in the event
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that less than 130 days notice or prior public disclosure of the date
of the meeting is given or made to stockholders (which notice or public
disclosure shall include the date of the annual meeting specified in these
By-laws, if such By-laws have been filed with the Securities and Exchange
Commission and if the Annual Meeting is held on such date), notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice of the day of the
annual meeting was mailed or such public disclosure was made. A stockholder's
notice to the President shall set forth as to each item of business the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the meeting, and in the case of a
nomination for election of director, such nominee's name and qualifications, and
the reasons for conducting business at the meeting, (b) the name and the record
address of the stockholder or stockholders proposing such business, (c) the
number of shares of stock of the Corporation which are beneficially owned by
such stockholder or stockholders, and (d) any material interest of the
stockholder in such business. The chairman of the meeting may refuse to
acknowledge the proposal of any stockholder not made in compliance with this
Section 2.12. Notwithstanding anything in these By-laws to the contrary, no
business shall be brought before or conducted at an annual meeting except in
accordance with the procedures set forth in this Section 2.12.
ARTICLE III
DIRECTORS
Section 3.1 General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors except as may be
otherwise provided by statute, these By-laws or the Certificate of
Incorporation.
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Section 3.2 Number, Tenure and Qualifications. The number of
directors shall be eight (8). The number may be increased or decreased from
time to time by amendment of this Section, except as may otherwise be provided
in the Certificate of Incorporation. Each director shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
In addition, each director of the Corporation shall own, of record or
beneficially, at least 120,000 shares of the Corporation.
Section 3.3 Regular Meetings. A regular meeting of the Board of
Directors shall be held, without other notice than this Section, immediately
after and at the same place as the annual meeting of stockholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without Delaware, for the holding of additional regular meetings without other
notice than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman, the President or at the
written request of any two directors. The person or persons who call a special
meeting of the Board of Directors may designate any place, either within or
without Delaware, as the place for holding such special meeting. In the absence
of such a designation, the place of meeting shall be the Corporation's principal
place of business.
Section 3.5 Notice of Special Meetings. Notice stating the
place, date and hour of a special meeting shall be mailed not less than five
days before the date of meeting, or shall be sent by telegram or be delivered
personally or by telephone not less than two days before the date of the
meeting, to each director by or at the direction of the person or persons
calling the meeting. Attendance of a director at any meeting shall constitute a
waiver of notice of such meeting except where a director attends a meeting for
the express purpose of objecting, at the beginning of the
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meeting, to the transaction of any business because the meting is not
lawfully called or convened. Neither the business to be transacted at nor the
purpose of any meeting of the Board of Directors need be specified in the notice
or waiver of notice of such meeting.
Section 3.6 Quorum and Manner of Acting. A majority of the number of
directors as fixed in Section 3.2 hereof shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors; provided, that
if less than a majority of such number of directors are present at said meeting,
a majority of the directors present may adjourn the meeting from time to time
without further notice. The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
unless otherwise provided in the Delaware General Corporation Law, the
Certificate of Incorporation or these By-laws.
Section 3.7 Informal Action by Directors. Any action which is required
by law or by these By-laws to be taken at a meeting of the Board of Directors,
or any other action which may be taken at a meeting of the Board of Directors or
any committee thereof, may be taken without a meeting if a consent in writing,
setting forth the action to be taken, shall be signed by all of the directors
entitled to vote with respect to the subject matter thereof, or by all the
members of such committee, as the case may be. Such consent shall have the same
force and effect as a unanimous vote of all of the directors or all of the
members of such committee, as the case may be, at a duly called meeting thereof,
and shall be filed with the minutes of proceedings of the Board or committee.
Section 3.8 Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, members of the Board of Directors
or of any committee designated by such Board, may participate in a meeting of
such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
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meeting can hear each other, and participation in a meeting pursuant to
this Section shall constitute presence in person at such meeting.
Section 3.9 Resignations. Any director may resign at any time by
giving written notice to the Board of Directors, the Chairman, the President, or
the Secretary. Such resignation shall take effect at the time specified
therein; and, unless tendered to take effect upon acceptance thereof, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.10 Vacancies and Newly-Created Directorships. Vacancies and
newly-created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director, and the directors
so chosen shall hold office until their successors are elected and qualified or
until their earlier resignation or removal.
Section 3.11 Removal. Any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
Section 3.12 Interested Directors.
(a) No contract or transaction between the Corporation and one or
more of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if:
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(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than quorum; or
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 3.13 Director Compensation. Unless otherwise restricted by
the Certificate of Incorporation or these By-laws, the Board of Directors shall
have the authority to fix the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
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ARTICLE IV
COMMITTEES
Section 4.1 Appointment and Powers. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation which, to the extent provided in said resolution or in these
By-laws, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation (except that any such
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of
Directors, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation thereof,
or amending the By-laws; and, unless the resolution, By-laws or Certificate of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to
adopt a certificate of ownership and merger pursuant to Section 253 of the
Delaware General Corporation Law.
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Section 4.2 Absence or Disqualification of Committee Member. In the
absence or disqualification of any member of such committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not they constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in place of any such absent or
disqualified member.
Section 4.3 Record of Proceedings. The committees shall keep regular
minutes of their proceedings and when required by the Board of Directors shall
report the same to the Board of Directors.
ARTICLE V
OFFICERS
Section 5.1 Number and Titles. The officers of the Corporation
shall be a Chairman of the Board, a President, one or more Vice Presidents (the
number thereof to be determined by the Board of Directors), a Treasurer and a
Secretary. There shall be such other officers and assistant officers as the
Board of Directors may from time to time deem necessary. Any two or more
offices may be held by the same person unless the Certificate of Incorporation
or these By-laws otherwise provide.
Section 5.2 Election, Term of Office and Qualifications. The
officers shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after the annual meeting of
stockholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as may be convenient. Vacancies may
be filled or new offices created and filled at any meeting of the Board of
Directors. Each officer shall be elected to hold office until his successor
shall have been elected and qualified, or until his earlier death, resignation
or removal. Election of an officer shall not of itself create contract rights.
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Section 5.3 Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
Section 5.4 Resignation. Any officer may resign at any time by giving
written notice to the Board of Directors, the Chairman, the President or the
Secretary. Such resignation shall take effect at the time specified therein;
and, unless tendered to take effect upon acceptance thereof, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5.5 Duties. In addition to and to the extent not
inconsistent with the provisions of these By-laws, the officers shall have such
authority, be subject to such restrictions, and perform such duties in the
management of the business, property and affairs of the Corporation as may be
determined from time to time by the Board of Directors.
Section 5.6 Chairman of the Board. The Chairman of the Board shall be
elected by and from the membership of the Board of Directors. Subject to the
control of the Board of Directors, the Chairman of the Board shall, in general,
supervise and manage the business and affairs of the Corporation and he shall
see that the resolutions and directions of the Board of Directors are carried
into effect. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the Corporation or a
different mode of execution is expressly prescribed by the Board of Directors
or these By-laws, or where otherwise required by law, the Chairman of the Board
may execute for the Corporation any contracts, deeds, mortgages, bonds or other
instruments which the Board of Directors has authorized to be executed or the
execution of which is in the ordinary course or the Corporation's business, and
he may accomplish such execution either under or without the seal of the
Corporation and either alone or with the Secretary, or any other
14
<PAGE> 15
officer thereunto authorized by the Board of Directors or these By-laws.
The Chairman of the Board shall preside at all meetings of the stockholders and
of the Board of Directors (and of any executive committee thereof), and shall
perform such other duties as from time to time shall be prescribed by the
Board of Directors.
Section 5.7 President. The President shall be the chief executive
officer of the Corporation. Subject to the control of the Board of Directors,
he shall in general supervise the business and affairs of the Corporation and
he shall see that resolutions and directions of the Board of Directors are
carried into effect except when that responsibility is specifically assigned to
some other person by the Board of Directors. Unless there is a Chairman of the
Board who is present and who has the duty to preside, the President shall
preside at all meetings of the stockholders and, if a director, at all meetings
of the Board of Directors. Except in those instances in which the authority to
execute is expressly delegated to another officer or agent of the Corporation
or a different mode of execution is expressly prescribed by the Board of
Directors or these By-laws or where otherwise required by law, the President
may execute for the Corporation any contracts, deeds, mortgages, bonds or other
instruments which the Board of Directors has authorized to be executed or the
execution of which is in the ordinary course of the Corporation's business, and
he may accomplish such execution either under or without the seal of the
Corporation and either individually or with the Secretary, any Assistant
Secretary, or any other officer thereunto authorized by the Board of Directors
or these By-laws. In general, he shall perform all duties incident to the
office of President and such other duties as from time to time may be
prescribed by the Chairman or the Board of Directors.
Section 5.8 Vice Presidents. In the absence of the President or in
the event of his inability or refusal to act, the Vice President (or in the
event there is more than one Vice President, the Vice
15
<PAGE> 16
President designated Executive Vice President by the Board of Directors and
thereafter, or in the absence of such designation, the Vice Presidents in the
order otherwise designated by the Board of Directors, or in the absence of such
other designation, in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the authority of and be
subject to all the restrictions upon the President. Except in those instances
in which the authority to execute is expressly delegated to another officer or
agent of the Corporation or a different mode of execution is expressly
prescribed by the Board of Directors or these By-laws or where otherwise
required by law, the Vice President (or each of them if there are more than
one) may execute for the Corporation any contracts, deeds, mortgages, bonds or
other instruments which the Board of Directors has authorized to be executed,
and he may accomplish such execution either under or without the seal of the
Corporation and either individually or with the Secretary, any Assistant
Secretary, or any other officer thereunto authorized by the Board of Directors
or these By-laws. The Vice Presidents shall perform such other duties as from
time to time may be prescribed by the Chairman, the President or the Board of
Directors.
Section 5.9 Treasurer. The Treasurer shall be the principal financial
and accounting officer of the Corporation, and shall (a) have charge and
custody of, and be responsible for, all funds and securities of the
Corporation; (b) keep or cause to be kept correct and complete books and
records of account including a record of all receipts and disbursements; (c)
deposit all funds and securities of the Corporation in such banks, trust
companies or other depositaries as shall be selected in accordance with these
By-laws; (d) from time to time prepare or cause to be prepared and render
financial statements of the Corporation at the request of the Chairman, the
President or the Board of Directors; and (e) in general, perform all duties
incident to the office of Treasurer and such other
16
<PAGE> 17
duties as from time to time may be prescribed by the Chairman, the President
or the Board of Directors. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors shall determine.
Section 5.10 Secretary. The Secretary shall (a) keep the minutes of
the proceedings of the stockholders and of the Board of Directors in one or
more books provided for that purpose; (b) see that all notices are duly given
in accordance with the provisions of these By-laws or as required by law; (c)
be custodian of the corporate records and of the seal of the Corporation and
see that the seal of the Corporation is affixed to all stock certificates prior
to the issuance thereof and to all documents the execution of which on behalf
of the Corporation under its seal is necessary or appropriate; (d) keep or
cause to be kept a register of the name and address of each stockholder, which
shall be furnished to the Corporation by each such stockholder, and the number
and class of shares held by each stockholder; (e) have general charge of the
stock transfer books; and (f) in general, perform all duties incident to the
office of Secretary and such other duties as from time to time may be
prescribed by the Chairman, the President or the Board of Directors.
Section 5.11 Assistant Treasurer and Assistant Secretaries. In the
absence of the Treasurer or Secretary in the event of the inability or refusal
of the Treasurer or Secretary to act, the Assistant Treasurer and the Assistant
Secretary (or in the event there is more than one of either, in the order
designated by the Board of Directors or in the absence of such designation, in
the order of their election) shall perform the duties of the Treasurer and
Secretary, respectively, and when so acting, shall have all the authority of
and be subject to all the restrictions upon such office. The Assistant
Treasurers and Assistant Secretaries shall also perform such duties as from
time to time may be
17
<PAGE> 18
prescribed by the Treasurer or the Secretary, respectively, or by the Chairman,
the President or the Board of Directors.
Section 5.12 Salaries. The salaries and additional compensation, if
any, of the officers shall be determined from time to time by the Board of
Directors; provided, that if such officers are also directors, such
determination shall be made by a majority of the disinterested directors then in
office.
ARTICLE VI
CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 6.1 Stock Certificates. The issued shares of the Corporation
shall be represented by certificates, and no class or series of shares of the
Corporation shall be uncertificated shares. Stock certificates shall be in
such form as determined by the Board of Directors and shall be signed by, or in
the name of the Corporation by the Chairman, the President or a Vice President,
and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation. Any of or all the signatures on the
certificates may be a facsimile. All certificates of stock shall bear the seal
of the Corporation, which seal may be a facsimile, engraved or printed.
Section 6.2 Transfer of Shares. The shares of the Corporation shall
be transferable. The Corporation shall have a duty to register any such
transfer (a) provided there is presented to the Corporation or its transfer
agents (i) the stock certificate endorsed by the appropriate person or persons;
and (ii) reasonable assurance that such endorsement is genuine and effective;
and, (b) provided that (i) the Corporation has no duty to inquire into adverse
claims or has discharged any such duty; (ii) any applicable law relating to the
collection of taxes has been complied with; and (iii) the transfer is in fact
rightful or is to a bona fide purchaser. Upon registration of such transfer
upon the stock transfer books of the Corporation the certificates representing
the shares transferred shall
18
<PAGE> 19
be cancelled and the new record holder, upon request, shall be entitled
to a new certificate or certificates. The terms and conditions described in
the foregoing provisions of this Section shall be construed in accordance with
the provisions of the Delaware Uniform Commercial Code, except as otherwise
provided by the Delaware General Corporation Law. No new certificate shall be
issued until the former certificate or certificates for a like number of
shares shall have been surrendered and cancelled, except that in case of a
lost, destroyed, wrongfully taken or mutilated certificate a new one may be
issued therefor upon such term and indemnity to the Corporation as the Board of
Directors, the Chairman or the President may prescribe consistent
with applicable law.
Section 6.3 Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the Delaware General Corporation Law.
ARTICLE VII
DIVIDENDS
Section 7.1 Dividends. Subject to the provisions of the Delaware General
Corporation Law and the Certificate of Incorporation, the Board of Directors
may declare and pay dividends upon the shares of its capital stock. Dividends
may be paid in cash, in property, or in shares of the Corporation's capital
stock.
19
<PAGE> 20
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnification. The Corporation shall indemnify, to the
full extent that it shall have the power under the Delaware General Corporation
Law to do so and in a manner permitted by such law, any person made or
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against liabilities and expenses reasonably
incurred or paid by such person in connection with such action, suit or
proceeding. The words "liabilities" and "expenses" shall include, without
limitations: liabilities, losses, damages, judgments, fines, penalties,
amounts paid in settlement, expenses, attorneys' fees and costs. Expenses
incurred in defending a civil, criminal, administrative, investigative or other
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding in accordance with the
provisions of Section 145 of the Delaware General Corporation Law, as amended.
The indemnification and advancement of expenses provided by this By-law
shall not be deemed exclusive of any other rights to which any person
indemnified may be entitled under any by-law, statute, agreement, vote of
stockholders, or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be such director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
20
<PAGE> 21
The Corporation may purchase and maintain insurance on behalf of any
person referred to in the preceding paragraph against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this By-law or
otherwise.
For purposes of this By-law, reference to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation, as director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this By-law with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
The provisions of this By-law shall be deemed to be a contract between
the Corporation and each director, officer, employee and agent who serves in
any such capacity at any time while this By-law and the relevant provisions of
the Delaware General Corporation Law, as amended, or other applicable law, if
any, are in effect, and any repeal or modification of any such law or of this
By-law shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon such state of facts.
For purposes of this By-law, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any
21
<PAGE> 22
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee or
agent of the corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to any employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the best interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner not opposed to the best interests of the Corporation.
ARTICLE IX
FISCAL YEAR
Section 9.1 Fiscal Year. The fiscal year of the Corporation shall be
fixed by the Board of Directors.
ARTICLE X
SEAL
Section 10.1 Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any manner reproduced.
ARTICLE XI
WAIVER OF NOTICE
Section 11.1 Waiver of Notice. Whenever any notice is required to be
given under these By-laws, the Certificate of Incorporation or the Delaware
General Corporation Law, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
22
<PAGE> 23
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 Contracts. The Board of Directors may authorize any
officer or agent to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation, and the Chairman or
President may so authorize any officer or agent with respect to contracts or
instruments in the usual and regular course of business. Such authority may be
general or confined to specific instances.
Section 12.2 Loans. No loan shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or
confined to specific instances.
Section 12.3 Checks, Drafts, Etc. All checks, drafts or other orders
for payment of money, or notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or agent as shall from
time to time be authorized by the Board of Directors.
Section 12.4 Deposits. The Board of Directors may select banks, trust
companies or other depositaries for the funds of the Corporation.
Section 12.5 Stock in Other Corporations. Shares of any other
corporation or bank which may from time to time be held by the Corporation may
be represented and voted by the Chairman or the President, or by any proxy
appointed in writing by the Chairman or the President, or by any other persons
thereunto authorized by the Board of Directors, at any meeting of stockholders
of such corporation or by executing written consents with respect to such
shares where stockholder action may be taken by written consent. Shares
represented by certificates standing in the name of the Corporation may be
endorsed for sale or transfer in the name of the Corporation by the Chairman
23
<PAGE> 24
or the President, or by any other officer thereunto authorized by the
Board of Directors. Shares belonging to the Corporation need not stand in the
name of the Corporation, but may be held for the benefit of the Corporation in
the name of any nominee designated for such purpose by the Board of Directors.
SECTION XIII
AMENDMENT
Section 13.1 Procedure. These By-laws may be altered, amended or
repaired and new by-laws may be adopted by the Board of Directors.
24
<PAGE> 1
EXHIBIT 4.1
Number CUSIP No.
- ------- 598251 10 6
THIS CERTIFICATE IS TRANSFERABLE IN THE
CITY OF NEW Y0RK OR CHICAGO, ILLINOIS
[LOGO]
MIDWEST BANC HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT is the owner of
SHARES OF THE COMMON STOCK OF
MIDWEST BANC HOLDINGS, INC.
of the par value of one cent per share, fully paid, transferable only on the
books of the Company in person or by attorney, on surrender of this Certificate
properly endorsed.
In Witness Whereof, the said Company has caused this Certificate to be
signed by its duly authorized officers and the Seal of the Company to be
hereunto affixed at Melrose Park, Illinois this ____ day of _____________,
A.D.____________.
- ---------------------------------------- -----------------------------------
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
TRANSFER AGENT AND REGISTRAR
By:
------------------------------
AUTHORIZED SIGNATURE
<PAGE> 2
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
For Value Received,_____ hereby sell, assign and transfer unto
_____________________________________________________________________________
_____________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_____________________________________________________________________________
_____________________________________________________________________________
_______________________________________________________________________ Shares
represented by the within certificate and do hereby irrevocably constitute and
appoint _____________________________________________________________ Attorney
to transfer the shares on the books of the within named Company, with full
power of substitution in the premises.
Dated _____________
X__________________________________
In Presence of
__________________________________
AFFIX MEDALLION SIGNATURE
GUARANTEE IMPRINT BELOW
--------------------------------------
NOTICE: THE ABOVE SIGNATURE(S) TO
THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR
ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION SUCH
AS A SECURITIES BROKER/DEALER,
COMMERCIAL BANK, TRUST COMPANY, SAVINGS
ASSOCIATION OR A CREDIT UNION
PARTICIPATING IN A MEDALLION PROGRAM
APPROVED BY THE SECURITIES TRANSFER
ASSOCIATION, INC.
<PAGE> 1
EXHIBIT 5.1
VEDDER PRICE VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601-1003
312-609-7500
FACSIMILE: 312-609-5005
A PARTNERSHIP INCLUDING VEDDER, PRICE,
KAUFMAN & KAMMHOLZ, P.C. WITH OFFICES IN
CHICAGO AND NEW YORK CITY
December 19, 1997
Midwest Banc Holdings, Inc.
501 West North Avenue
Melrose Park, Illinois 60160
Ladies and Gentlemen:
We have acted as counsel to Midwest Banc Holdings, Inc. (the "Company") in
connection with the registration of 1,265,000 shares of Common Stock, par value
$0.01 per share of the Company (the "Shares"), including 165,000 shares subject
to an underwriters' over-allotment option, pursuant to a registration statement
on Form S-1 under the Securities Act of 1933, as amended (the "Registration
Statement").
In rendering this opinion, we have assumed the authenticity, accuracy and
completeness of all documents submitted to us as originals, the conformity to
authentic original documents of all documents submitted to us as certified,
conformed or photostatic copies and the genuineness of all signatures. As to
questions of fact material to our opinion, we have relied, without
investigation, upon the representations of: (a) officers of the Company
contained in certificates delivered to us; and (b) public officials.
Based upon the foregoing, we are of the opinion that the Shares are duly
authorized, and upon issuance and delivery in accordance with the Underwriting
Agreement referred to in the Registration Statement, will be validly issued,
fully paid and non-assessable.
We hereby consent to the use of this opinion in connection with the
Registration Statement and the Prospectus included therein and to the use of
our name under the heading "Legal Matters" in the Prospectus.
Very truly yours,
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<PAGE> 1
EXHIBIT 10.1
REVOLVING LOAN AGREEMENT
The LOAN AGREEMENT (the "Agreement"), dated as of May 1st, 1995, is
entered into between FIRST MIDWEST CORPORATION OF DELAWARE, a Delaware
corporation (the "Borrower"), whose address is 501 West North Avenue, Melrose
Park, Illinois, 60160 and LASALLE NATIONAL BANK, a national banking association
(the "Bank") , whose address is 120 South LaSalle Street, Chicago, Illinois.
RECITALS:
WHEREAS, the Borrower desires to borrow from the Bank up to the sum of
Seventeen Million Dollars ($17,000,000) in order to provide for Borrower's
working capital needs; and
WHEREAS, Bank is willing to lend to the Borrower up to Seventeen Million
Dollars ($17,000,000) in accordance with the terms, subject to the conditions
and in reliance on the representations, warranties and covenants set forth
herein and in the other documents and instruments entered into or delivered in
connection with or relating to the loan contemplated in the Agreement;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements hereinafter set forth, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT:
1. COMMITMENTS OF THE BANK.
The Bank agrees to extend a revolving loan (the "Loan") to the Borrower in
the principal amount of up to Seventeen Million Dollars ($17,000,000), such
loan to be evidenced by the Note, and secured by securities described in the
Pledge Agreement (hereinafter defined) in accordance with terms and subject to
the conditions set forth in this Agreement, the Note and the Pledge Agreement.
Advances made by the Bank hereunder may be repaid and, subject to the terms and
conditions hereof borrowed again, up to but not including May 31, 1996.
2. CONDITIONS OF BORROWING.
Notwithstanding any other provision of this Agreement, the Bank shall not
be required to extend the Loan:
(a) if any Default (as such term is defined below) has occurred or any
event which, with the giving of notice or lapse of time, or both, would
constitute such a Default;
(b) if any litigation or governmental proceeding has been instituted or
threatened against the Borrower or any Subsidiary or any of its officers or
shareholders which
<PAGE> 2
in the sole discretion of the Bank will adversely affect the financial
condition or operations of the Borrower or such Subsidiary;
3. NOTE EVIDENCING BORROWING.
The Loan shall be evidenced by a promissory note (the "Note") executed by
the Borrower in the principal amount of $17,000,000 and shall be in the form
set forth in Exhibit A hereto. Without in any way limiting the term of the
Note:
(a) The Borrower shall pay interest on amounts outstanding under the
Note as provided herein. Borrower shall make principal payments of $500,000 on
the 1st day of each of the below identified quarters on which interest is due
commencing July 1, 1995. Principal so repaid may not be reborrowed. Interest
shall be payable quarterly, in arrears, commencing on July 1, 1995 and
continuing on the first day of each October, January, and April thereafter,
with a final payment of all outstanding amounts due under the Note, including,
but not limited to principal and interest if not sooner paid, on May 1, 1996.
The amounts outstanding from time to time shall bear interest calculated on the
actual number of days elapsed on the basis of a 360 day year, at a rate equal,
at the Borrower's option, to either (a) the London Inter-Bank Offered Rate
("LIBOR") plus 100 basis points, or (b) the Prime Rate (whichever rate is so
selected, the "Interest Rate").
For purposes of this Agreement, the term "Prime Rate" shall mean the
floating prime rate in effect from time to time as set by the Bank, and
referred to by the Bank as its Prime Rate. The Borrower acknowledges that the
Prime Rate is not necessarily the Bank's lowest or most favorable rate of
interest at any one time. The effective date of any change in the Prime Rate
shall for purposes hereof be the date the rate change is publicly announced by
the Bank.
LIBOR borrowings hereunder shall be for a period of one, two or three
months (the "Interest Period"). Prepayments of LIBOR borrowings shall be
permitted only at the conclusion of an Interest Period. Prepayments of LIBOR
borrowings prior to the conclusion of an Interest Period shall be subject to
penalty charges at the discretion of the Bank.
With respect to the renewal of any Loan, or any new borrowing hereunder,
in the event that deposits in the amount and for the term of the selected
Interest Period are unavailable to Bank, or that by reason or circumstances
affecting the LIBOR markets generally, adequate and reasonable means do not
exist for ascertaining the interest rate applicable to such LIBOR loan for the
selected Interest Period, Borrower shall either repay such loan or direct Bank
to convert such loan into a LIBOR or floating rate loan of a type which is
available on the last day of the then current Interest Period, said choice
between repayment or conversion to be solely at Borrower's option.
If it shall become unlawful (or contrary to any direction from or
requirement of any governmental authority having jurisdiction over Bank) for
Bank to honor its commitment or to continue to fund or maintain any Loan or to
perform its obligations hereunder, then upon demand
2
<PAGE> 3
by Bank to Borrower, if it is unlawful for Bank to honor its commitment to
make any loan, such commitment shall thereupon be cancelled and, if it is
unlawful for Bank to continue to fund or maintain any loan, Borrower shall
prepay without premium or penalty such loan together with accrued interest
thereon on the last day of the then current Interest Period or on such
earlier date as may be required by law.
Each request by Borrower for a LIBOR loan must be received by Bank no
later than 11:00 a.m. Chicago, Illinois time, on the day which is two days
prior to the day it is to be funded. Requests for all other loans must be
received by Bank no later than 11:00 a.m. Chicago, Illinois time, on the same
day it is to be funded.
(b) Borrower shall pay Bank a fee of 25 basis points on the unused
amount of the credit commitment available hereunder on a 360 day basis. Such
fee shall be paid on the same quarterly basis that interest is payable
hereunder.
(c) Any amount of principal or interest on the Note which is not paid
when due, whether at stated maturity, by acceleration or otherwise shall bear
interest payable on demand at an interest rate equal at all times to two percent
(2%) above the Interest Rate.
(d) If any payment to be made by the Borrower hereunder shall become due
on a Saturday, Sunday or Bank holiday under the laws of the State of Illinois,
such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing any interest in respect of such
payment.
4. PRINCIPAL PREPAYMENTS.
Prepayments are permitted at any time, and shall be applied to the next
succeeding principal payment due.
5. REPRESENTATIONS AND WARRANTIES.
To induce the Bank to make the Loan provided for herein, the Borrower
represents and warrants as follows:
(a) The Borrower: (i) is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware; (ii) is
duly qualified as a foreign corporation and in good standing in all states in
which it is doing business except where the failure to so qualify would not have
a material adverse effect on the Borrower or its business; and (iii) has all
requisite power and authority, corporate or otherwise, to own, operate and lease
its properties and to carry on its business as now being conducted. The
Subsidiaries (hereinafter defined) are Illinois banking corporations, and have
all requisite power and authority, corporate or otherwise, to own, operate and
lease their property and to carry on each's business as now being conducted. The
Borrower and the Subsidiaries have made payment of all franchise and similar
taxes in the State of Illinois and in all of the respective jurisdictions in
which they are
3
<PAGE> 4
incorporated or qualified, and so far as such taxes are due and payable at the
date of the Agreement.
(b) The Borrower is or shall become the owner of 100% of the issued and
outstanding capital stock of Midwest Bank and Trust Company, The National Bank
of Monmouth, Midwest Bank of Hinsdale and Midwest Bank of McHenry County
(collectively the "Subsidiaries"). Attached hereto as Exhibit B is a true,
correct and complete list of the shares of capital stock of the Subsidiaries
(the "Subsidiary Shares").
(c) The Subsidiary Shares have been duly authorized, legally and validly
issued, fully paid and nonassessable, and are owned by the Borrower free and
clear of all pledges, liens, security interest, charges or encumbrances, except,
upon consummation of the transactions contemplated herein, for the security
interest granted by the Borrower to the Bank. There are, as of the date hereof,
no outstanding options, rights or warrants obligating the Borrower or any
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of any Subsidiary or obligating the
Borrower or any Subsidiary to grant, extend or enter into any such agreement or
commitment.
(d) The financial statements of:
(i) the Borrower, all of which have heretofore been furnished to the
Bank, have been prepared in accordance with generally accepted accounting
principles consistently applied ("GAAP") and maintained by the Borrower
throughout the periods involved, and fairly present the financial condition of
the Borrower individually and on a consolidated basis at such dates specified
therein and the results of its operations for the periods then ended; and
(ii) the Subsidiaries, all of which have heretofore been furnished to
the Bank, to the best knowledge of the Borrower have been prepared in accordance
with GAAP and maintained by each Subsidiary throughout the periods involved, and
fairly present the financial condition of each such Subsidiary at such dates
specified therein and the results of its operation for the periods then entered.
(e) To the best knowledge of the Borrower, since the latest date of the
financial statements referred to in Section 5(d) above, there have been no
material changes in the assets, liabilities, or condition, financial or
otherwise, of the Borrower or any Subsidiary other than changes arising from
transactions in the ordinary course of business, and none of such changes has
been materially adverse.
(f) There are no actions, suits, proceedings or written agreements
pending, or to the best of the knowledge of the Borrower threatened or proposed,
against the Borrower or, to the best knowledge of the Borrower, against any
Subsidiary at law or in equity or before or by any federal, state, municipal, or
other governmental department, commission, board, or other administrative
agency, domestic or foreign, of a material nature; and neither of the Borrower
nor, to the best knowledge of the Borrower, any Subsidiary is in default with
respect to any order,
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<PAGE> 5
writ, injunction, or decree of, or any written agreement with, any court,
commission, board or agency, domestic or foreign.
(g) all tax returns and reports of the Borrower and, to the best
knowledge of the Borrower, all Subsidiaries, required by law to be filed have
been duly filed, and all taxes, assessments, fees and other governmental charges
upon the Borrower and each Subsidiary or upon any of their properties or assets
which are due and payable have been paid, and the Borrower knows of no
additional assessment of a material nature against the Borrower or any
Subsidiary for taxes, or except as disclosed on the financial statements
referred to in Section 5(d) above, of any basis for any such additional
assessment.
(h) The Borrower's primary business is that of a bank holding company,
and all necessary regulatory approvals have been obtained for it to conduct its
business.
(i) The deposit accounts of each Subsidiary are insured by the Federal
Deposit Insurance Corporation ("FDIC").
(j) None of the Pledged Stock constitutes margin stock, as defined in
Regulation U of the Board of Governors of the Federal Reserve System ("FRS").
The foregoing representations and warranties shall survive the making of
this Agreement, and execution and delivery of the Note and the Pledge
Agreement, and shall be deemed to be continuing representations and warranties
until such time as the Borrower has satisfied all of its obligations to the
Bank.
6. NEGATIVE COVENANTS
The Borrower agrees that until the Borrower satisfies all of its
obligations to the Bank, including, but not limited to its obligations to pay
in full all principal, interest and other amounts owing in accordance with the
terms of this Agreement or the Note, the Borrower shall not itself, nor shall
Borrower cause, permit or allow any Subsidiary to:
(a) create, assume, incur, have outstanding, or in any manner become
liable in respect of any indebtedness for borrowed money, and, in the case of a
Subsidiary, indebtedness incurred in the ordinary course of the business of
banking and in accordance with applicable laws and regulations and safe and
sound banking practices. For purposes of this Agreement, the phrase
"indebtedness" shall mean and include: (i) all items arising from the borrowing
of money, which according to generally accepted accounting principles now in
effect, would be included in determining total liabilities as shown on the
balance sheet; (ii) all indebtedness secured by any lien in property owned by
the Borrower whether or not such indebtedness shall have been assumed; (iii) all
guarantees and similar contingent liabilities in respect to indebtedness of
others; and (iv) all other interest-bearing obligations evidencing indebtedness
in others;
5
<PAGE> 6
(b) create, assume, incur, suffer or permit to exist any mortgage,
pledge, deed of trust, encumbrance (including the lien or retained security
title of a conditional vendor) security interest, assignment, lien or charge of
any kind or character upon or with respect to any of their properties whether
owned at the date hereof or hereafter acquired, or assigned or otherwise convey
any right to receive income excepting only: (i) liens for taxes, assessments or
other governmental charges for the then current year or which are not yet due or
delinquent; (ii) liens for taxes, assessments or other governmental charges
already due, but the validity of which is being contested at the time in good
faith in such a manner as not to make the property forfeitable; (iii) liens and
charges incidental to current operation which are not due or delinquent; (iv)
liens for workmen's compensation awards not due or delinquent; (v) pledges or
deposits to secure obligations under workmen's compensation laws or similar
legislation; (vi) purchase money mortgages or other liens on real property; and
(vii) liens existing on the date hereof as shown on their financial statements;
(c) dispose by sale, assignment, lease or otherwise property or assets
now owned or hereafter acquired, outside the ordinary course of business in
excess of 10% of its consolidated assets in any fiscal year;
(d) merge into or consolidate with or into any other person, firm or
corporation;
(e) make any loans or advances whether secured or unsecured to any
person, firm or corporation, other than loans or advances made by the
Subsidiaries in the ordinary course of their banking business and in accordance
with applicable laws and regulations and safe and sound banking practices;
(f) engage in any business or activity not permitted by all applicable
laws and regulations, including without limitation, the Bank Holding Company Act
of 1954, the Illinois Banking Act, the Federal Deposit Insurance Act and any
regulations promulgated thereunder;
(g) make any loan or advance secured by the capital stock of another
bank or depository institution (except for loans made in the ordinary course of
business), or acquire the capital stock, assets or obligations of or any
interest in another bank or depository institution, without prior written
approval of the Bank;
(h) directly or indirectly create, assume, incur, suffer or permit to
exist any pledge, encumbrance, security interest, assignment, lien or charge of
any kind or character on the Subsidiary Shares or any other stock owned by the
Borrower;
(i) cause or allow the percent of the Subsidiary Shares to diminish as a
percentage of the outstanding capital stock of the Borrower;
(j) sell, transfer, issue, reissue, exchange or grant any option with
respect to the Subsidiary Shares;
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<PAGE> 7
(k) redeem any of its capital stock, declare a stock dividend or split
or otherwise change the capital structure of Borrower or of any Subsidiary
without prior written approval of the Bank;
(l) breach or fail to perform or observe any of the terms and conditions
of the Note, the Pledge Agreement or any other document or agreement entered
into or delivered in connection with, or relating to, the Loan;
(m) engage in any unsafe or unsound banking practices; or
(n) violate any law or regulation, or any condition imposed by or
undertaking provided to the FRS, the FDIC or the Illinois Commissioner of Banks
and Trust Companies in connection with the Borrower's acquisition of the
Subsidiary Shares.
7. AFFIRMATIVE COVENANTS.
The Borrower agrees that until the Borrower satisfies all of its
obligations to the Bank, including, but not limited to its obligations to pay
in full all principal, interest and other amounts in accordance with the terms
of the Agreement, the Note and the Pledge Agreement, it shall:
(a) furnish and deliver to the Bank:
(i) as soon as practicable, and in no event later than forty-five (45)
days after the end of each of the first three calendar quarterly periods of the
Borrower and the Subsidiaries, a copy of: (1) the balance sheet, profit and
loss statement, surplus statement and any supporting schedules prepared in
accordance with generally accepted accounting principles consistently applied
and signed by the presidents and chief financial officers of the Borrower and
the Subsidiaries; and (2) all financial statements, including, but not limited
to, all call reports, filed with any state or federal bank regulatory authority;
(ii) as soon as practicable, and in no event later than ninety (90) days
after the end of each calendar year, a copy of: (1) the consolidated balance
sheets as of the end of such year and of the consolidated profit and loss and
surplus statements for the Borrower and the Subsidiaries for such year audited
by independent certified public accountants satisfactory to the Bank and
accompanied by an unqualified opinion; and (2) all financial statements and
reports, including, but not limited to call reports and annual reports, filed
annually with state or federal regulatory authorities;
(iii) as soon as practicable, and in no event later than forty-five (45)
days after the end of each calendar quarter, copies of the then current
loan/asset watch list, the substandard loan/asset list, the nonperforming
loan/asset list and other real estate owned list of the Subsidiaries;
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<PAGE> 8
(iv) immediately after receiving knowledge thereof, notice in writing
of all charges, assessment, actions, suits and proceeding that are proposed or
initiated by, or brought before, any court or governmental department,
commission, board or other administrative agency, in connection with the
Borrower or any Subsidiary, other than ordinary course of business litigation
not involving the FRS, the FDIC or the Illinois Commissioner of Banks and Trust
Companies, which, if adversely decided, would not have a material effect on the
financial condition or operations of the Borrower or the Subsidiary; and
(v) promptly after the occurrence thereof, notice of any other matter
which has resulted in a materially adverse change in the financial condition or
operations of the Borrower or any Subsidiary;
(b) contemporaneously with the furnishing of a copy of each annual
report and of each quarterly statement provided pursuant to Section 7(a)(i) and
(ii) above, deliver to Bank, a certificate signed by the President and the
Treasurer of the Borrower, containing a computation of the then current
financial ratios specified in Subsections 7(c) through (j) of this Agreement,
and stating that no Default or unmatured Default has occurred or is continuing,
or, if there is any such event, describing such event, the steps, if any, that
are being taken to cure it, and the time within which such cure will occur;
(c) maintain such capital as is necessary to cause the Borrower to have
adequate capital in accordance with the regulations of the FRS and any
requirements or conditions that the FRS has or may impose on the Borrower;
(d) as of December 31, 1995 maintain such capital as is necessary to
cause the Subsidiaries to be classified as "well capitalized" institutions in
accordance with the regulations of the FDIC, currently measured on the basis of
information filed by Borrower in its quarterly Consolidated Report of Income and
Condition (the "Call Report") as follows:
(i) Total Capital to Risk-Weighted Assets of not less than 10%;
(ii) Tier 1 Capital to Risk-Weighted Assets of not less than 6%;
and
(iii) Tier 1 Capital to average Total Assets of not less than 5%
(For the purposes of this subsection (d) (iii) the average
Total Assets shall be determined on the basis of
information contained in the preceding four (4) Call
Reports);
(e) maintain tangible equity capital of no less than $28,000,000
commencing December 31, 1995. For the purposes of this Section 7(e), "tangible
equity capital" shall mean
8
<PAGE> 9
the sum of the common stock, surplus and retained earning accounts reduced by
the amount of any goodwill;
(f) cause the ratio of nonperforming loans to the primary capital of the
Subsidiaries to be not more than twenty five percent (25%) at all times. For
purposes of this Section 7(f), "primary capital" shall mean the sum of the
common stock, surplus and retained earning accounts plus the reserve for loan
and lease losses and "nonperforming loans" shall mean the sum of all non-accrual
loans and loans on which any payment is ninety (90) or more days past due;
(g) earn a minimum consolidated net income of no less than $2,700,000
commencing December 3l, 1995 and at all times thereafter;
(h) not pay dividends to shareholders on an annual basis of more than
twenty-five percent of Borrower's consolidated net income or $700,000, whichever
is the lesser amount;
(i) promptly pay and discharge all taxes, assessments and other
governmental charges imposed upon the Borrower or any Subsidiary or upon the
income, profits, or property of the Borrower or any Subsidiary and all claims
for labor, material or supplies which, if unpaid, might by law become a lien or
charge upon the property of the Borrower or any Subsidiary. Neither the
Borrower nor any Subsidiary shall be required to pay any such tax, assessment,
charge or claim, so long as the validity thereof shall be contested in good
faith by appropriate proceedings, and reserves therefor shall be maintained on
the books of the Borrower or any such Subsidiary and as such reserves are deemed
reasonably adequate by the Bank;
(j) maintain bonds and insurance and cause each Subsidiary to maintain
bonds and insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risk as is usually carried by
owners of similar businesses and properties;
(k) permit and cause each Subsidiary to permit the Bank through its
employees, attorneys, accountants or other agents, to inspect any of the
properties, corporate books and financial books and records of the Borrower and
each Subsidiary at such times and as often as the Bank reasonably may request;
and
(l) provide and cause each Subsidiary promptly to provide the
Bank with such other information concerning the business, operations, financial
condition and regulatory status of the Borrower and each Subsidiary as the Bank
may from time to time reasonably request.
8. COLLATERAL.
Pursuant to the Pledge Agreement, the Borrower has concurrently herewith
assigned, transferred, pledged and delivered to the Bank as collateral for all
of the Borrower's obligations
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<PAGE> 10
from time to time to the Bank, the Subsidiary Shares and any other Pledged
Security (as defined in the Pledge Agreement) whether now or hereafter pledged.
9. EVENTS OF DEFAULT; DEFAULT; RIGHTS UPON DEFAULT.
The happening or occurrence of any of the following events or acts shall
each constitute a Default hereunder, and any such Default shall also constitute
a Default under the Note, the Pledge Agreement and any other loan document,
without right to notice or time to cure in favor of the Borrower except as
indicated below:
(a) if the Borrower fails to make payment fifteen (15) days after notice
by the Bank or where applicable upon demand, or fails to make any payments as
provided for herein;
(b) if there continues to exist any breach under any obligation of any
other documents executed pursuant to this Agreement including, without
limitation, the Note and the Pledge Agreement and such breach remains uncured
beyond the applicable time period, if any, specifically provided therefor;
(c) if any representation or warranty made in this Agreement shall
continue to be false when made or at any time during the term of this Agreement
or any extension thereof, or if the Borrower fails to perform or observe any
covenant or agreement contained in this Agreement fifteen (15) days after notice
by Bank;
(d) if the Borrower fails to perform or observe any covenant or
agreement contained in any other agreement between the Borrower or any
Subsidiary and the Bank, or if any condition contained in any agreement between
the Borrower or any Subsidiary and the Bank is not fulfilled and such failure
remains uncured beyond the applicable time period, if any, specifically provided
therefor;
(e) if the Borrower shall continue to fail to perform and observe, or
cause or permit any Subsidiary to fail to perform and observe any covenants
under this Agreement, including, without limitation, all affirmative and
negative covenants set forth in Sections 6 and 7 of this Agreement fifteen (15)
days after notice by the Bank;
(f) if the FRS, the FDIC, the Illinois Commissioner of Banks and Trust
Companies or other governmental agency charged with the regulation of bank
holding companies or depository institutions initiates any enforcement action,
suit or regulatory proceeding of any kind or character whatsoever against the
Borrower, any Subsidiary or any officer or director thereof, including, without
limitation, any action to impose restrictions that prevent or as a practical
matter impair the payment of dividends by any Subsidiary or the payments of any
debt by the Borrower or restrictions that make the payment for the dividends by
any Subsidiary or the payment of debt by the Borrower subject to prior
regulatory approval;
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<PAGE> 11
(g) if any Subsidiary is notified that it is considered an institution
in "troubled condition" within the meaning of 12 U.S.C. Section 1831(i) and the
regulations promulgated thereunder, or if a conservator or receiver is appointed
for any Subsidiary;
(h) if the Borrower or any Subsidiary becomes insolvent or is unable to
pay its debts as they mature; or makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts as they mature; or
suspends transaction of its usual business, or if a trustee of any substantial
part of the assets of the Borrower or any Subsidiary is applied for or
appointed, and if appointed in a proceeding brought against the Borrower, the
Borrower by any action or failure to act indicates its approval of, consent to,
or acquiescence in such appointment, or within thirty (30) days such appointment
is not vacated or stayed on appeal or otherwise, or shall not otherwise have
ceased to continue in effect;
(i) if any proceedings involving the Borrower or any Subsidiary are
commenced by or against the Borrower or any Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law or statute of the federal government or any state government and
if such proceedings are instituted against the Borrower, the Borrower by any
action or failure to act indicates its approval of, consent to our acquiescence
therein, or an order shall be entered approving the petition in such proceedings
and within thirty (30) days after the entry thereof such order is not vacated or
stayed on appeal or otherwise, or shall not otherwise have ceased to continue in
effect; or
(j) if the Borrower or any Subsidiary continues to be in default in any
payment of principal or interest for any other obligation or in the performance
of any other term, condition or covenant contained in any agreement (including
but not limited to an agreement in connection with the acquisition of capital
equipment on a title retention or net lease basis), under which any such
obligation is created the effect of which default is to cause or permit the
holder of such obligation to cause such obligation to become due prior to its
stated maturity.
Upon the occurrence of a Default, the Bank shall have all rights and
remedies provided by applicable law and, without limiting the generality of the
foregoing, may, at its option, declare its commitments hereunder to be
terminated and the Note shall thereupon be and become forthwith, due and
payable, without any presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Borrower, anything contained
herein or in the Note or the Pledge Agreement to the contrary notwithstanding,
and may, also without limitation, appropriate and apply toward the payment of
the Note any indebtedness of the Bank to the Borrower however created or
arising, and may, also without limitation exercise any and all rights in and to
the collateral security referred to in Section 8 above and under the Pledge
Agreement. There shall be no obligation to liquidate any collateral pledged
hereunder in any order or with any priority or to exercise any remedy available
to the Bank in any order.
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<PAGE> 12
10. MISCELLANEOUS.
(a) No failure or delay on the part of the Bank in exercising any right,
power or remedy hereunder shall operate as a waiver thereof. No single or
partial exercise of any such right, power or remedy shall preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law. Time is of the essence in the performance of the
covenants, agreements and obligations of the Borrower and each Subsidiary.
(b) This Agreement constitutes the entire agreement between the parties
and supersedes all prior agreements between the Bank and the Borrower with
respect to the subject matter hereof. No amendment, modification, termination
or waiver of any provision of this Agreement, the Pledge Agreement or the Note,
or consent to any departure by the Borrower therefrom, shall be effective except
for the specific purpose for which given. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances.
(c) All notices, requests, demands and other communications provided for
hereunder shall be: (i) in writing, (ii) made in one of the following manners,
and (iii) shall be deemed given (a) if and when personally delivered, (b) on the
next business day if sent by nationally recognized overnight courier addressed
to the appropriate party as set forth below, or (c) on the second business day
after being deposited in United States certified or registered mail, and
addressed as follows: if to Borrower at the address first indicated above,
Attention: President and if to Bank, at the address first indicated above,
Atention: Mark Hoppe,
(d) This Agreement shall become effective when it shall have been
executed by the Borrower and the Bank and thereafter shall be binding upon and
inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior consent of
the Bank which may be given or denied in the Bank's sole and absolute
discretion.
(e) This Agreement and the Note shall be governed by the internal laws
of the State of Illinois, and for all purposes shall be construed in accordance
with the laws of said State.
(f) Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction; wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law.
(g) All covenants, agreements, representations and warranties made by
the Borrower herein shall, notwithstanding any investigation by or knowledge on
the part of the
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<PAGE> 13
Bank, be deemed material and relied on by the Bank and shall survive the
execution and delivery to the Bank of this Agreement and the Note.
(h) This Agreement shall govern the terms of any extensions or renewals
to the Note, subject to any additional teems and conditions imposed by the Bank
in connection with any such extension or renewal.
(i) The Borrower will pay all reasonable costs and expenses (including,
without limitation, reasonable attorneys' fees) in connection with the
collection and enforcement of this Agreement, the Note, the Pledge Agreement and
any other instruments and documents to be delivered hereunder.
(j) Any accounting term not specifically defined herein shall be
construed in accordance with generally accepted accounting principles which are
applied in the preparation of the financial statements referred to in Section
5(C), and all financial data submitted pursuant to this Agreement shall be
prepared in accordance with such principles.
(k) The Bank reserves the right to sell participations in this loan or
otherwise assign, transfer or hypothecate all or any part of this loan.
(l) All covenants, agreements, warranties, and representations of the
Borrower herein shall be deemed to have been made jointly and severally by the
Borrower and the Subsidiary.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
FIRST MIDWEST CORPORATION OF DELAWARE
By: /s/ Robert L. Woods
--------------------------------
Its: President
--------------------------------
LASALLE NATIONAL BANK
By: /s/
--------------------------------
Its: F.VP.
--------------------------------
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<PAGE> 14
FIRST AMENDMENT TO
REVOLVING LOAN AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING LOAN AGREEMENT dated as of May 1, 1996
(the "Amendment"), is between FIRST MIDWEST CORPORATION OF DELAWARE, a Delaware
corporation (the "Borrower"), and LASALLE NATIONAL BANK, a national banking
association (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank entered into a Revolving Loan
Agreement, dated as of May 1, 1995 (the "Agreement"); and
WHEREAS, the Borrower and the Bank desire to amend the Agreement as more
fully described herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definition
shall have the respective meanings set forth in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
2.1 Recitals to the Agreement. The Recitals provisions of the Agreement
are hereby amended as of the date hereof by deleting the figure "Seventeen
Million Dollars ($17,000,000)" in each place in which it appears and
substituting the figure "Eighteen Million Dollars ($18,000,000)" in lieu
thereof.
2.2 Amendment to Section 1 of the Agreement. Section 1 of the Agreement
is hereby amended as of the date hereof by restating it in its entirety, as
follows:
"1. COMMITMENT OF THE BANK.
The Bank agrees to extend a revolving loan (the "Loan") to the Borrower in
the principal amount not to exceed Eighteen Million Dollars ($18,000,000), such
Loan to be evidenced by the Note (as defined below), and secured by securities
described in the Pledge Agreement (hereinafter defined) in accordance with
terms and subject to the conditions set forth in this Agreement, the Note and
the Pledge Agreement. Advances made by the Bank hereunder may be repaid and,
subject to the terms and conditions hereof borrowed again, up to but not
including May 1, 1997."
2.3 Amendment to Section 3 of the Amendment. The first sentence of
Section 3 of the Agreement is hereby amended as of the date hereof by deleting
the figure "Seventeen Million Dollars ($17,000,000)" and substituting the figure
"Eighteen Million Dollars ($18,000,000)" in lieu thereof.
<PAGE> 15
2.4 Amendment to Section 3(a) of the Agreement. The first paragraph of
Section 3(a) of the Agreement is hereby amended as of the date hereof by
restating it in its entirety, as follows:
"(a) The Borrower shall pay interest on amounts outstanding under the
Note as provided herein. Borrower shall make principal payments of
$500,000 on the 1st day of each of the below identified quarters on
which interest is due, commencing July 1, 1996. Interest shall be
payable quarterly, in arrears, commencing on July 1, 1996 and
continuing on the first day of each October, January, and April
thereafter, with a final payment of all outstanding amounts due under
the Note, including, but not limited to principal and interest if not
sooner paid, on May 1, 1997. The amounts outstanding from time to time
shall bear interest calculated on the actual number of days elapsed on
the basis of a 360 day year, at a rate equal, at the Borrower's option,
to either (a) the London Inter-Bank Offered Rate ("LIBOR") plus 100
basis points, or (b) the Prime Rate (whichever rate is so selected, the
"Interest Rate")."
3. WARRANTIES. To induce the Bank to enter into this Amendment, the
Borrower warrants that:
3.1 Authorization. The Borrower is duly authorized to execute and
deliver this Amendment and is and will continue to be duly authorized to borrow
monies under the Agreement, as amended hereby, and to perform its obligations
under the Agreement, as amended hereby.
3.2 No Conflicts. The execution and delivery of this Amendment and the
performance by the Borrower of its obligations under the Agreement, as amended
hereby, do not and will not conflict with any provision of law or of the charter
or by-laws of the Borrower or of any agreement binding upon the Borrower.
3.3 Validity and Binding Effect. The Agreement, as amended hereby, is a
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency or other similar laws of general application affecting
the enforcement of creditors' rights or by general principles of equity limiting
the availability of equitable remedies.
3.4 No Default. As of the date hereof, no Event of Default under
Section 9 of the Agreement, as amended by this Amendment, or event or condition
which, with the giving of notice or the passage of time, shall constitute an
Event of Default, has occurred or is continuing.
3.5 Warranties. As of the date hereof, the representations and
warranties in Section 5 of the Agreement are true and correct as though made on
such date, except for such changes as are specifically permitted under the
Agreement.
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4. CONDITIONS PRECEDENT. This Amendment shall become effective as of the
date above first written after receipt by the Bank of the following documents:
(a) This Amendment, duly executed by the Borrower;
(b) A Replacement Revolving Promissory Note in the form of Exhibit A-1
attached hereto, duly executed by the Borrower;
(c) First Amendment to Pledge and Security Agreement, duly executed by
the Borrower; and
(d) Such other documents and instruments as the Bank reasonably
requests.
5. GENERAL.
5.1 Law. This Amendment shall be construed in accordance with and
governed by the laws of the State of Illinois.
5.2 Successors. This Amendment shall be binding upon the Borrower and
the Bank and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Bank and their respective successors and
assigns.
5.3 Confirmation of the Agreement. Except as amended hereby, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
LASALLE NATIONAL BANK FIRST MIDWEST CORPORATION OF
DELAWARE
By: /s/ By: /s/ Robert L. Woods
--------------------- ---------------------------
Its: S.V.P. Its: President
--------------------- ---------------------------
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<PAGE> 17
SECOND AMENDMENT TO
REVOLVING LOAN AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING LOAN AGREEMENT dated as of May 1, 1997
(this "Amendment"), is between FIRST MIDWEST CORPORATION OF DELAWARE, a
Delaware corporation (the "Borrower"), and LASALLE NATIONAL BANK, a national
banking association (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank entered into a Revolving Loan Agreement
dated as of May 1, 1995, as amended by a First Amendment thereto dated May 1,
1996 (collectively, the "Agreement"); and
WHEREAS, the Borrower and the Bank desire to amend the Agreement as more
fully described herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definition
shall have the respective meanings set forth in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
2.1 Amendment to Section 1 of the Agreement. Section 1 of the Agreement
is hereby amended as of the date hereof by restating it in its entirety, as
follows:
"1. COMMITMENT OF THE BANK.
The Bank agrees to extend a revolving loan (the "Loan") to the Borrower in
the principal amount not to exceed Eighteen Million Dollars ($18,000,000), such
Loan to be evidenced by the Note (as defined below), and secured by securities
described in the Pledge Agreement (hereinafter defined) in accordance with
terms and subject to the conditions set forth in this Agreement, the Note and
the Pledge Agreement. Advances made by the Bank hereunder may be repaid and,
subject to the terms and conditions hereof borrowed again, up to but not
including May 1, 1998."
2.2 Amendment to Section 2 of the Agreement. Section 2 of the Agreement
is hereby amended by adding the following as new subsection (e) thereto:
"(e) The Loans may be advanced in the form of direct advances. Each
Loan shall be made available to the Borrower upon its written request,
from any person whose authority to so act has not been revoked by the
Borrower in writing previously received by the Bank. Such request must
be received by no later than 11:00 a.m. Chicago, Illinois time,
<PAGE> 18
on the day it is to be funded. The proceeds of each Loan shall be made
available at the office of the Bank by credit to the account of the
Borrower or by other means requested by the Borrower and acceptable to
the Bank. The Bank is authorized to rely on the telephonic, telecopy or
telegraphic loan requests which the Bank believes in its good faith
judgment to emanate from a properly authorized representative of the
Borrower, whether or not that is in fact the case. The Borrower does
hereby irrevocably confirm, ratify and approve all such advances by the
Bank and does hereby indemnify the Bank against losses and expenses
(including court costs, reasonable attorneys' and paralegals' fees) and
shall hold the Bank harmless with respect thereto."
2.3 Amendment to Section 3 (a) of the Agreement. The first paragraph
of Section 3 (a) of the Agreement is hereby amended as of the date hereof by
restating it in its entirety, as follows:
"(a) The Borrower shall pay interest on amounts outstanding under the
Note as provided herein. Borrower shall make principal payments of
$500,000 on the 1st day of each of the below identified quarters on which
interest is due, commencing July 1, 1997. Interest shall be payable
quarterly, in arrears, commencing on July 1, 1997 and continuing on the
first day of each October, January, and April thereafter, with a final
payment of all outstanding amounts due under the Note, including, but not
limited to principal and interest if not sooner paid, on May 1, 1998. The
amounts outstanding from time to time shall bear interest calculated on
the actual number of days elapsed on the basis of a 360 day year, at a
rate equal, at the Borrower's option, to either (a) the London Inter-Bank
Offered Rate ("LIBOR") plus 100 basis points, or (b) the Prime Rate
(whichever rate is so selected, the "Interest Rate")."
3. WARRANTIES. To induce the Bank to enter into this Amendment, the
Borrower warrants that:
3.1 Authorization. The Borrower is duly authorized to execute and
deliver this Amendment and is and will continue to be duly authorized to borrow
monies under the Agreement, as amended hereby, and to perform its obligations
under the Agreement, as amended hereby.
3.2 No Conflicts. The execution and delivery of this Amendment and the
performance by the Borrower of its obligations under the Agreement, as amended
hereby, do not and will not conflict with any provision of law or of the charter
or by-laws of the Borrower or of any agreement binding upon the Borrower.
3.3 Validity and Binding Effect. The Agreement, as amended hereby,
is a legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency or other similar laws of general application
affecting the enforcement of creditors' rights or by general principles of
equity limiting the availability of equitable remedies.
2
<PAGE> 19
3.4 No Default. As of the date hereof, no Event of Default under
Section 9 of the Agreement, as amended by this Amendment, or event or condition
which, with the giving of notice or the passage of time, shall constitute an
Event of Default, has occurred or is continuing.
3.5 Warranties. As of the date hereof, the representations and
warranties in Section 5 of the Agreement are true and correct as though made on
such date, except for such changes as are specifically permitted under the
Agreement.
4. CONDITIONS PRECEDENT. This Amendment shall become effective as of the
date above first written after receipt by the Bank of the following documents:
(a) This Amendment, duly executed by the Borrower;
(b) A Replacement Revolving Promissory Note in the form of Exhibit A-2
attached hereto, duly executed by the Borrower; and
(c) Such other documents and instruments as the Bank reasonably
requests.
5. GENERAL.
5.1 Law. This Amendment shall be construed in accordance with and
governed by the laws of the State of Illinois.
5.2 Successors. This Amendment shall be binding upon the Borrower and
the Bank and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Bank and their respective successors and
assigns.
5.3 Confirmation of the Agreement. Except as amended hereby, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
LASALLE NATIONAL BANK FIRST MIDWEST CORPORATION OF
DELAWARE
By: /s/ By: /s/ Robert L. Woods
--------------------- ---------------------------
Its: Vice President Its: President
--------------------- ---------------------------
April 8, 1997
3
<PAGE> 1
EXHIBIT 10.2
REVOLVING LOAN AGREEMENT
THIS AGREEMENT, dated as of May 1, 1995 is entered into between MIDWEST
ONE MORTGAGE SERVICES, INC., an Illinois corporation ("COMPANY"), and LASALLE
NATIONAL BANK, a national banking association ("LASALLE").
1. COMMITMENTS OF LASALLE
Subject to the terms of this Agreement, LASALLE agrees to lend to the
COMPANY such sums as the COMPANY may request, but not to exceed in aggregate
principal at any time an amount equal to Four Million Dollars ($4,000,000) or
95% of the face value of all mortgages owned or serviced by the Company,
whichever is the lesser amount (the "LOAN").
2. NOTE EVIDENCING BORROWING
A. The borrowing under Section 1 above shall be evidenced by a note
(herein called the "Note") executed by the COMPANY, in the form set forth in
Exhibit "A", dated the date of the borrowing and payable on May 1, 1996. At
the time of the initial borrowing, and each time a repayment is made in whole
or in part thereon, an appropriate notation shall be made on the books and
records of LASALLE. All amounts recorded shall be conclusive and binding
evidence of the amounts advanced unless said recording was made in error or was
otherwise not appropriate. Failure of LASALLE to record an advance shall not
affect the obligation of the COMPANY to pay.
B. The Loan shall be evidenced by a promissory note (the "Note") executed
by the Borrower in the principal amount of $4,000,000 and shall be in the form
set forth in Exhibit A hereto. Without in any way limiting the term of the
Note:
(a) The Borrower shall pay interest on amounts outstanding under the
Note as provided herein. Interest shall be payable quarterly, in arrears,
commencing on July 1, 1995 and continuing on the first day of each October,
January, and April thereafter, with a final payment of all outstanding amounts
due under the Note, including, but not limited to principal and interest if not
sooner paid, on May 1, 1996. The amounts outstanding from time to time shall
bear interest calculated on the actual number of days elapsed on the basis of a
360 day year, at a rate equal, at the Borrower's option, to either (a) the
London Inter-Bank Offered Rate ("LIBOR") plus 100 basis points, or (b) the
Prime Rate (whichever rate is so selected, the "Interest Rate").
For purposes of this Agreement, the term "Prime Rate" shall mean the
floating prime rate in effect from time to time as set by the Bank, and
referred to by the Bank as its Prime Rate. The Borrower acknowledges that the
Prime Rate is not necessarily the Bank's lowest or most favorable rate of
interest at any one time. The effective date of any change in the Prime Rate
shall for purposes hereof be the date the rate change is publicly announced by
the Bank.
<PAGE> 2
LIBOR borrowings hereunder shall be for a period of one, two or three
months (the "Interest Period"). Prepayments of LIBOR borrowings shall be
permitted only at the conclusion of an Interest Period. Prepayments of LIBOR
borrowings prior to the conclusion of an Interest Period shall be subject to
penalty charges at the discretion of the Bank.
With respect to the renewal of any Loan, or any new borrowing hereunder,
in the event that deposits in the amount and for the term of the selected
Interest Period are unavailable to Bank, or that by reason or circumstances
affecting the LIBOR markets generally, adequate and reasonable means do not
exist for ascertaining the interest rate applicable to such LIBOR loan for the
selected Interest Period, Borrower shall either repay such loan or direct Bank
to convert such loan into a LIBOR or floating rate loan of a type which is
available on the last day of the then current Interest Period, said choice
between repayment or conversion to be solely at Borrower's option.
If it shall become unlawful (or contrary to any direction from or
requirement of any governmental authority having jurisdiction over Bank) for
Bank to honor its commitment or to continue to fund or maintain any Loan or to
perform its obligations hereunder, then upon demand by Bank to Borrower, if it
is unlawful for Bank to honor its commitment to make any loan, such commitment
shall thereupon be cancelled and, if it is unlawful for Bank to continue to
fund or maintain any loan, Borrower shall prepay without premium or penalty
such loan together with accrued interest thereon on the last day of the then
current Interest Period or on such earlier date as may be required by law.
Each request by Borrower for a LIBOR loan must be received by Bank no
later than 11:00 a.m. Chicago, Illinois time, on the day which is two days
prior to the day it is to be funded. Requests for all other loans must be
received by Bank no later than 11:00 a.m. Chicago, Illinois time, on the same
day it is to be funded.
(b) Borrower shall pay Bank a fee of 25 basis points on the unused
amount of the credit commitment available hereunder. Such fee shall be paid on
the same quarterly basis that interest is payable hereunder.
(c) Any amount of principal or interest on the Note which is not paid
when due, whether at stated maturity, by acceleration or otherwise shall bear
interest payable on demand at an interest rate equal at all times to two
percent (2%) above the Interest Rate.
(d) If any payment to be made by the Borrower hereunder shall become due
on a Saturday, Sunday or Bank holiday under the laws of the State of Illinois,
such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing any interest in respect of
such payment.
C. If any payment to be made hereunder shall become due on a Saturday,
Sunday or Bank holiday under the laws of the State of Illinois, such payment
shall be made on the next succeeding business day and such extension of time
shall be included in computing any interest in respect of such payment.
<PAGE> 3
3. PRINCIPAL PAYMENTS
The total amount of principal outstanding shall be due and payable from
the Company to LaSalle on or before May 1, 1996. Prepayments shall be
permitted without premium or penalty except in the case of LIBOR borrowings.
4. REPRESENTATIONS AND WARRANTIES
To induce LASALLE to make the Loan provided for herein, the COMPANY
represents and warrants that:
A. The advance hereunder shall be used to fund mortgage loans until the
Company is able to sell them in the secondary market.
B. COMPANY is a duly formed and legally constituted corporation under the
laws of Illinois, with power to perform all acts done pursuant to this
Agreement and duly qualified to transact business in the State of Illinois and
in all jurisdictions where the nature of its business requires such licensing
or qualification.
C. COMPANY's financial statements, all of which have been furnished to
LASALLE, have been prepared in accordance with generally accepted accounting
principles and fairly present the financial condition of COMPANY at such dates
and the results of its operations for the periods then ended.
D. Since the latest date of the statements mentioned in Section C, there
have been no material adverse changes in the condition of the COMPANY except
changes arising from transactions in the ordinary course of business, and there
are no material suits or proceedings pending, or to the knowledge of the
COMPANY threatened, against the COMPANY which involve the possibility of any
material judgment or liability not fully covered by insurance; and the COMPANY
is not in default with respect to any order, writ, injunction, or decree of any
court.
E. All necessary tax returns of the COMPANY have been duly filed, and all
material taxes, assessments, fees and other material governmental charges
(other than those presently payable with penalty or interest) upon the COMPANY
or upon any of its properties or assets which are due and payable have been
paid.
F. The COMPANY has received necessary regulatory approvals to transact all
business which it is conducting.
The foregoing representations and warranties shall survive the making of
this Agreement and, except for D and E which are represented and warranted only
as of the date of this Agreement, shall be deemed to be continuing
representations and warranties until the COMPANY has fulfilled all obligations
to LASALLE and LASALLE has been paid in full.
<PAGE> 4
5. NEGATIVE COVENANTS
Subject to the general exception to each negative covenant that COMPANY
may continue to conduct its business as presently conducted, the COMPANY agrees
that until payment in full of the Note and all interest thereon it and unless
agreed to in writing by LASALLE, the COMPANY shall not:
A. Create, assume, incur, have outstanding, or in any manner become liable
in respect of any indebtedness for borrowed money (other than under the Note)
in excess of $200,000 at any one time.
B. Merge into or consolidate with or into any other person, firm or
corporation, unless the COMPANY is the survivor.
C. Directly or indirectly pledge or otherwise by the COMPANY's affirmative
action encumber the stock of any bank subsidiary of the COMPANY.
D. Directly or indirectly pledge, assign, sell, transfer or otherwise
encumber any mortgage loans of the COMPANY.
6. AFFIRMATIVE COVENANTS
The COMPANY covenants that so long as the Note or any part thereof shall
be outstanding and unpaid, or the COMPANY shall have any commitment hereunder,
it shall:
A. Furnish and deliver to LASALLE:
(i) as soon as possible, and in any event within forty-five (45) days
after the end of each of the first three quarterly fiscal periods of the
COMPANY, a copy of the consolidated financial statements prepared in
accordance with generally accepted accounting principles consistently
applied and signed by a principal financial officer;
(ii) as soon as possible and in any event within ninety (90) days after
the end of each fiscal year, a copy of the COMPANY's consolidated balance
sheet as of the end of such year and the related consolidated statement of
income for such year examined by independent public accountants and
accompanied by an unqualified opinion;
(iii) as soon as possible, and in any event within forty-five (45) days
after the end of each quarterly fiscal period of Midwest Bank and Trust
Company, The National Bank of Monmouth, Midwest Bank of Hinsdale, and
Midwest Bank of McHenry County ("the Banks"), a copy of the BANK's Call
Report as of the end of the immediately preceding quarter, signed by the
proper officers/directors of the BANK; and
(iv) within thirty (30) days thereafter, notice in writing of all
material proceedings before any court or governmental department or other
administrative agency or of any
<PAGE> 5
other material matter which would have a material adverse effect on the
operations of the COMPANY.
B. Promptly pay and discharge all assessments and other governmental
charges imposed upon the COMPANY or the income, profits, or property of the
COMPANY and all claims for labor, material or supplies which, if unpaid, might
by law become a lien or charge upon the property of the COMPANY; provided that
the COMPANY shall not be required to pay if the validity thereof shall be
contested in good faith by appropriate proceedings or otherwise, and adequate
reserves shall be maintained on the books of the COMPANY.
C. Insure or cause its bank subsidiaries to insure such properties and
risks with respect to its or their business as the COMPANY reasonably deems to
be consistent with sound banking practice.
7. GUARANTY
As collateral security for all of COMPANY's obligations from time to time
to LASALLE, First Midwest Corporation of Delaware has executed a Continuing
Unconditional Guaranty in favor of the LaSalle secured by 100% of the stock of
the BANKS.
8. RIGHTS UPON DEFAULT
Upon the occurrence of any of the following events or acts:
A. If the COMPANY fails to make payment when due;
B. If any representation or warranty of this Agreement shall be false when
made or, except for 4.D and 4.E, shall be false at any time during the term of
this Agreement or any extension thereof, or if the COMPANY defaults in the
performance of any covenant, condition or agreement contained in this Agreement
or any material covenant, condition or agreement contained in any other
agreement with LASALLE;
C. If the COMPANY becomes insolvent or is unable to pay its debts as they
mature; or makes an assignment for the benefit of creditors or admits in
writing its inability to pay its debts as they mature; or suspends transaction
of its usual business, or if a trustee of any substantial part of the assets of
the COMPANY is applied for or appointed, or if any proceedings involving the
insolvency or inability to pay the debt of the COMPANY are commenced by the
COMPANY under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law or statute of the federal
government or any state government;
D. Company shall fail to maintain the following ratio: Liabilities
defined in accordance with generally accepted accounting principles ("GAAP") to
Tangible Equity defined in accordance with GAAP of 8 to 1.
LASALLE shall have all rights and remedies provided by applicable law and,
without limiting the generality of the foregoing, may, at its option, declare
its commitments to be terminated and
<PAGE> 6
the Note shall thereupon be and become forthwith, due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Note to the
contrary notwithstanding, any may, also without limitation, appropriate and
apply toward the payment of the Note any indebtedness of LASALLE to the COMPANY
however created or arising, and may, also without limitation exercise any and
all rights in and to the collateral security, if any, referred to in Section 7
above.
9. MISCELLANEOUS
A. No failure or delay on the part of LASALLE in exercising any right or
remedy hereunder shall operate as a waiver; nor shall any single or partial
exercise of any such right or remedy preclude any further exercise of any other
right or remedy hereunder. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
B. This Agreement constitutes the entire agreement between the parties and
there are no promises expressed or implied unless contained herein. No
amendment, modification, termination or waiver of any provision of this
Agreement or of the Note shall in any event be effective unless the same shall
be in writing and signed by LASALLE. No notice to or demand on the COMPANY in
any case shall entitle the COMPANY to any other or further notice or demand in
similar or other circumstances.
C. All notices, requests, demands and other communications provided for
hereunder shall be in writing and, if to the COMPANY mailed or delivered to the
then President, and if to LASALLE, mailed or delivered to it, addressed to it
at 120 South LaSalle Street, Chicago, Illinois 60603, Attention: Correspondent
Division, or, as to each party, at such other address as shall be designated by
such party in a written notice to each other party complying as to delivery
with the terms of this subsection. All notices, requests, demands and other
communications provided for hereunder shall be effective when delivered, or if
mailed, three business days after being deposited in the mails, postage
prepaid, addressed as aforesaid.
D. This Agreement shall become effective when it shall have been executed
by the COMPANY and LASALLE and thereafter shall be binding upon and inure to
the benefit of the COMPANY and LASALLE and their respective successors and
assigns, except that the COMPANY shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of LASALLE.
E. This Agreement and the Note will be delivered and accepted in and shall
be deemed to be contracts made under and governed by the laws of the State of
Illinois, and for all purposes shall be construed in accordance with the laws
of said State. This Agreement shall govern the terms of any extensions or
renewals to the Note.
F. Any provision of this Agreement which is unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction; wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law.
<PAGE> 7
G. All covenants, agreements, representations and warranties made by the
COMPANY herein shall be deemed material and relied on by LASALLE and shall
survive the execution and delivery to LASALLE of this Agreement and any Note.
H. LASALLE represents that it will received the Note payable to it as
evidence of a bank loan.
I. The COMPANY will pay all costs and expenses (including reasonable
attorney's fees), if any, of collection and enforcement of this Agreement, the
Note and the other documents to be delivered hereunder.
J. LASALLE reserves the right to sell participations in this loan.
The parties hereto have caused this Agreement to be executed by their
authorized officers as of the date first above written.
MIDWEST ONE MORTGAGE SERVICES, INC.
By: /s/
-----------------------------------
Its: President
-----------------------------------
LASALLE NATIONAL BANK
By: /s/
-----------------------------------
Its: F.VP.
-----------------------------------
PFM:de
<PAGE> 8
FIRST AMENDMENT TO
REVOLVING LOAN AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING LOAN AGREEMENT dated as of May 1, 1996
(this "Amendment"), is between MIDWEST ONE MORTGAGE SERVICES, INC., an Illinois
corporation (the "Borrower"), and LASALLE NATIONAL BANK, a national banking
association (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank entered into a Revolving Loan Agreement
dated as of May 1, 1995 (the "Agreement"); and
WHEREAS, the Borrower and the Bank desire to amend the Agreement as more
fully described herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definition
shall have the respective meanings set forth in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
2.1 Amendment to Section 2.A of the Agreement. Section 2.A of the
Agreement is hereby amended as of the date hereof by deleting the date "May 1,
1996" and substituting the date "May 1, 1997" in lieu thereof.
2.2 Amendment to Section 2.B(a) of the Agreement. Section 2.B(a) of the
Agreement is hereby amended as of the date hereof by restating the first two
sentences thereof, as follows:
"(a) The Borrower shall pay interest on amounts outstanding under the
Note as provided herein. Interest shall be payable quarterly, in arrears,
commencing on July 1, 1996 and continuing on the first day of each
October, January, and April thereafter, with a final payment of all
outstanding amounts due under the Note, including, but not limited to
principal and interest if not sooner paid, on May 1, 1997."
2.3 Amendment to Section 3 of the Agreement. Section 3 of the Agreement
is hereby amended as of the date hereof by deleting the date "May 1, 1996" and
substituting the date "May 1, 1997" in lieu thereof."
3. WARRANTIES. To induce the Bank to enter into this Amendment, the
Borrower warrants that:
<PAGE> 9
3.1 Authorization. The Borrower is duly authorized to execute and
deliver this Amendment and is and will continue to be duly authorized to borrow
monies under the Agreement, as amended hereby, and to perform its obligations
under the Agreement, as amended hereby.
3.2 No Conflicts. The execution and delivery of this Amendment and the
performance by the Borrower of its obligations under the Agreement, as amended
hereby, do not and will not conflict with any provision of law or of the charter
or by-laws of the Borrower or of any agreement binding upon the Borrower.
3.3 Validity and Binding Effect. The Agreement, as amended hereby, is a
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency or other similar laws of general application affecting
the enforcement of creditors' rights or by general principles of equity limiting
the availability of equitable remedies.
3.4 No Default. As of the date hereof, no Event of Default under
Section 8 of the Agreement, as amended by this Amendment, or event or condition
which, with the giving of notice or the passage of time, shall constitute an
Event of Default, has occurred or is continuing.
3.5 Warranties. As of the date hereof, the representations and
warranties in Section 4 of the Agreement are true and correct as though made on
such date, except for such changes as are specifically permitted under the
Agreement.
4. CONDITIONS PRECEDENT. This Amendment shall become effective as of the
date above first written after receipt by the Bank of the following documents:
(a) This Amendment duly executed by the Borrower;
(b) A Replacement Promissory Note in the form of
Exhibit A-1 attached hereto, duly executed by the Borrower;
(c) Reaffirmation of Guaranty of First Midwest
Corporation of Delaware; and
(d) Such other documents and instruments as the Bank
reasonably requests.
5. GENERAL
5.1 Law. This Amendment shall be construed in accordance with and
governed by the laws of the State of Illinois.
2
<PAGE> 10
5.2 Successors. This Amendment shall be binding upon the Borrower and the
Bank and their respective successors and assigns, and shall inure to the benefit
of the Borrower and the Bank and their respective successors and assigns.
5.3 Confirmation of the Agreement. Except as amended hereby, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
LASALLE NATIONAL BANK MIDWEST ONE MORTGAGE SERVICES, INC.
By: /s/ By: /s/ Daniel R. Kadolph
-------------------------- --------------------------
Its: S.V.P. Its: President
-------------------------- --------------------------
3
<PAGE> 11
SECOND AMENDMENT TO
REVOLVING LOAN AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING LOAN AGREEMENT dated as of May 1, 1997
(this "Amendment"), is between MIDWEST ONE MORTGAGE SERVICES, INC., an Illinois
corporation (the "Borrower"), and LASALLE NATIONAL BANK, a national banking
association (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank entered into a Revolving Loan Agreement
dated as of May 1, 1995, as amended by a First Amendment thereto dated May 1,
1996 (collectively, the "Agreement"); and
WHEREAS, the Borrower and the Bank desire to amend the Agreement as more
fully described herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definition shall
have the respective meanings set forth in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
2.1 Amendment to Section 2.A of the Agreement. Section 2.A of the
Agreement is hereby amended as of the date hereof by deleting the date "May 1,
1997" and substituting the date "May 1, 1998" in lieu thereof.
2.2 Amendment to Section 2.B(a) of the Agreement. Section 2.B(a) of
the Agreement is hereby amended as of the date hereof by restating the first two
sentences thereof, as follows:
"(a) The Borrower shall pay interest on amounts outstanding under the
Note as provided herein. Interest shall be payable quarterly, in
arrears, commencing on July 1, 1997 and continuing on the first day of
each October, January, and April thereafter, with a final payment of all
outstanding amounts due under the Note, including, but not limited to
principal and interest if not sooner paid, on May 1, 1998."
2.3 Amendment to Section 2 of the Agreement. Section 2 of the
Agreement is hereby amended as of the date hereof by adding the following as
new subsection (E) thereto:
"(E) The Loans may be advanced in the form of direct advances. Each
Loan shall be made available to the Borrower upon its written request,
from any person whose authority to so act has not been revoked by the
Borrower in writing previously received by the
<PAGE> 12
Bank. Such request must be received by no later than 11:00 a.m. Chicago,
Illinois time, on the day it is to be funded. The proceeds of each Loan
shall be made available at the office of the Bank by credit to the
account of the Borrower or by other means requested by the Borrower and
acceptable to the Bank. The Bank is authorized to rely on the
telephonic, telecopy or telegraphic loan requests which the Bank believes
in its good faith judgment to emanate from a properly authorized
representative of the Borrower, whether or not that is in fact the case.
The Borrower does hereby irrevocably confirm, ratify and approve all such
advances by the Bank and does hereby indemnify the Bank against losses
and expenses (including court costs, reasonable attorneys' and
paralegals' fees) and shall hold the Bank harmless with respect thereto."
2.4 Amendment to Section 3 of the Agreement. Section 3 of the
Agreement is hereby amended as of the date hereof by deleting the date "May 1,
1997" and substituting the date "May 1, 1998" in lieu thereof."
3. WARRANTIES. To induce the Bank to enter into this Amendment, the
Borrower warrants that:
3.1 Authorization. The Borrower is duly authorized to execute and
deliver this Amendment and is and will continue to be duly authorized to borrow
monies under the Agreement, as amended hereby, and to perform its obligations
under the Agreement, as amended hereby.
3.2 No Conflicts. The execution and delivery of this Amendment and the
performance by the Borrower of its obligations under the Agreement, as amended
hereby, do not and will not conflict with any provision of law or of the
charter or by-laws of the Borrower or of any agreement binding upon the
Borrower.
3.3 Validity and Binding Effect. The Agreement, as amended hereby, is a
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency or other similar laws of general application
affecting the enforcement of creditors' rights or by general principles of
equity limiting the availability of equitable remedies.
3.4 No Default. As of the date hereof, no Event of Default under
Section 8 of the Agreement, as amended by this Amendment, or event or
condition which, with the giving of notice or the passage of time, shall
constitute an Event of Default, has occurred or is continuing.
3.5 Warranties. As of the date hereof, the representations and
warranties in Section 4 of the Agreement are true and correct as though made
on such date, except for such changes as are specifically permitted under the
Agreement.
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4. CONDITIONS PRECEDENT. This Amendment shall become effective as of the
date above first written after receipt by the Bank of the following documents:
(a) This Amendment duly executed by the Borrower;
(b) A Replacement Promissory Note in the form of Exhibit A-2
attached hereto, duly executed by the Borrower;
(c) Reaffirmation of Guaranty of First Midwest Corporation
of Delaware; and
(d) Such other documents and instruments as the Bank
reasonably requests.
5. GENERAL.
5.1 Law. This Amendment shall be construed in accordance with and
governed by the laws of the State of Illinois.
5.2 Successors. This Amendment shall be binding upon the Borrower and
the Bank and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Bank and their respective successors and
assigns.
5.3 Confirmation of the Agreement. Except as amended hereby, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
LASALLE NATIONAL BANK MIDWEST ONE MORTGAGE SERVICES, INC.
By: /s/ By: /s/ Daniel R. Kadolph
-------------------------- -------------------------------
Its: Vice President Its: Treasurer
-------------------------- ------------------------------
April 8, 1997
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<PAGE> 1
EXHIBIT 10.3
AMENDED THROUGH DECEMBER 18, 1997
MIDWEST BANC HOLDINGS, INC.
1996 STOCK OPTION PLAN
ARTICLE 1.
ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. MIDWEST BANC HOLDINGS, INC., a Delaware
corporation (f/k/a First Midwest Corporation of Delaware and hereinafter
referred to as the "Company"), hereby establishes an incentive compensation
plan to be known as the Midwest Banc Holdings, Inc. 1996 Stock Option Plan
(hereinafter referred to as the "Plan"), as set forth in this document.
Subject to approval by the Company's stockholders, the Plan shall become
effective as of November 19, 1996 (the "Effective Date") and shall remain in
effect as provided in Section 1.3 hereof.
1.2 PURPOSE OF THE PLAN. The purpose of this Plan is to benefit the
Company and its subsidiaries and affiliated companies by enabling the Company
to offer to certain present and future executives, key personnel, consultants
and non-employee directors stock based incentives in the Company, thereby
giving them a stake in the growth and prosperity of the Company and encouraging
the continuance of their services with the Company or subsidiaries or
affiliated companies.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date
and shall remain in effect, subject to the right of the Board of Directors to
amend or terminate the Plan at any time pursuant to Article 16 hereof, until
all Shares subject to it shall have been purchased or acquired according to the
Plan's provisions. However, in no event may an Award be granted under the Plan
on or after November 19, 2006.
ARTICLE 2.
DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
"AWARD" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options or Incentive Stock Options.
<PAGE> 2
"AWARD AGREEMENT" means a writing provided by the Company to each
Participant setting forth the terms and provisions applicable to Awards granted
under this Plan. The Participant's acceptance of the terms of the Award
Agreement shall be evidenced by his or her continued employment without written
objection before any exercise or payment of the Award. If the Participant
objects in writing, the grant of the Award shall be revoked.
"BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"CAUSE" shall mean, with respect to termination of a Participant's
employment or directorship, the occurrence of any one or more of the following,
as determined by the Committee, in the exercise of good faith and reasonable
judgment:
(i) In the case where there is no employment, change in control
or similar agreement in effect between the Participant and the
Company or a Subsidiary at the time of the grant of the Award, or
where there is such an agreement but the agreement does not define
"cause" (or similar words) or a "cause" termination would not be
permitted under such agreement at that time because other conditions
were not satisfied, the termination of an employment or consulting
arrangement due to the willful and continued failure or refusal by
the Participant to substantially perform assigned duties (other than
any such failure resulting from the Participant's Disability), the
Participant's dishonesty or theft, the Participant's violation of
any obligations or duties under any employee agreement, or the
Participant's gross negligence or willful misconduct; or
(ii) In the case where there is an employment, change in control
or similar agreement in effect between the Participant and the
Company or a Subsidiary at the time of the grant of the Award that
defines "cause" (or similar words) and a "cause" termination would
be permitted under such agreement at that time, the termination of
an employment or consulting arrangement that is or would be deemed
to be for "cause" (or similar words) as defined in such agreement.
No act or failure to act on a Participant's part shall be considered willful
unless done, or omitted to be done, by the Participant not in good faith and
without reasonable belief that his action or omission was in the best interest
of the Company.
"CHANGE OF CONTROL" of the Company shall mean:
(a) The Company is merged or consolidated or reorganized into or
with another corporation or other legal person (an "Acquiror") and
as a result of such merger, consolidation or reorganization less
than 50% of the outstanding voting securities or other capital
interests of the surviving, resulting or acquiring corporation or
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other legal person are owned in the aggregate by the stockholders of
the Company, directly or indirectly, immediately prior to such
merger, consolidation or reorganization, other than by the Acquiror
or any corporation or other legal person controlling, controlled by
or under common control with the Acquiror;
(b) The Company sells all or substantially all of its business
and/or assets to an Acquiror, of which less than 50% of the
outstanding voting securities or other capital interests are owned
in the aggregate by the stockholders of the Company, directly or
indirectly, immediately prior to such sale, other than by any
corporation or other legal person controlling, controlled by or
under common control with the Acquiror;
(c) Any person or group (as the terms "person" and "group" are
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act and
the rules and regulations promulgated thereunder) has become the
beneficial owner (as the term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of more than 50% of the issued and outstanding shares
of voting securities of Company, other than (i) a trustee or other
fiduciary holding securities under any employee benefit plan of the
Company or any Subsidiary or (ii) a corporation owned directly or
indirectly by the stockholders of the Company in substantially the
same proportion as their ownership of stock in the Company.
(d) Individuals who are members of the Incumbent Board cease to
constitute a majority of the Board of Directors of the Company. For
this purpose, "Incumbent Board" means (i) the members of the Board
of Directors of the Company on the Effective Date and (ii) any
individual who becomes a member of the Board of Directors of the
Company after the Effective Date, if such individual's election or
nomination for election as a Director was approved by the
affirmative vote of the then Incumbent Board.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation thereto.
"COMMITTEE" means the Committee as specified in Article 3 herein appointed
by the Board to administer the Plan with respect to grants of Awards.
"COMMON STOCK" or "SHARES" means the common stock, $0.01 par value per
share, of the Company.
"COMPANY" means Midwest Banc Holdings, Inc., a Delaware corporation, as
well as any successor to such entity as provided in Article 12 herein.
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"DIRECTOR" means any individual who is a member of the Board of Directors
of the Company.
"DISABILITY" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan. If no long term disability
plan is in place with respect to a Participant, then with respect to that
Participant, Disability shall have the same meaning ascribed to such term under
Section 22(e)(3) of the Code.
"EARLY RETIREMENT" means the Participant's termination of employment with
the Company and all Subsidiaries (for reasons other than Cause) on or after
attaining age 55 having completed five or more years of employment with the
Company or Subsidiaries.
"EFFECTIVE DATE" shall have the meaning ascribed to such term in Section
1.1 hereof.
"EMPLOYEE" means any employee of the Company or any Subsidiary, or any
consultant who provides services to the Company or any Subsidiary; provided,
that for purposes hereof, references to periods of employment or termination of
employment shall be deemed, in the case of a consultant, to be references to
his or her consulting arrangement with the Company or any Subsidiary.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor act thereto.
"FAIR MARKET VALUE" shall mean, as of any date, the fair market value of
the Common Stock as determined by the Committee based upon the most recent
closing sales price for Common Stock traded in the over-the-counter market as
reported by the market makers for the Common Stock.
"INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
"NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase Shares
granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
"OPTION" means an Incentive Stock Option or a Nonqualified Stock Option,
as described in Article 6 herein.
"OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
"PARTICIPANT" means an individual who has outstanding an Award granted
under the Plan.
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"PERSON" shall have the meaning ascribed to such term in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
group as defined in Section 13(d) thereof.
"RETIREMENT" means the Participant's termination of employment with the
Company or its Subsidiaries (for reasons other than Cause) on or after the date
the Participant attains age 65, or, in the case of Non-Employee Directors,
shall mean the termination of his or her directorship (for reasons other than
Cause) on or after attaining age 55.
"SUBSIDIARY" means any corporation, partnership, joint venture, affiliate,
or other entity in which the Company is the direct or indirect beneficial owner
of not less than 20% of all issued and outstanding equity interests.
ARTICLE 3.
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Board, or by the
Compensation Committee of the Board, or by any other Committee appointed by the
Board. The functions of the Committee may be exercised by the full Board.
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Employees and
consultants who shall participate in the Plan; determine the sizes and types of
Awards; determine the terms and conditions of Awards in a manner consistent
with the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend, or waive rules and regulations
for the Plan's administration; and (subject to the provisions of Article 10
herein) amend the terms and conditions of any outstanding Award to the extent
such terms and conditions are within the discretion of the Committee as
provided in the Plan. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of
the Plan. As permitted by law, the Committee may delegate the authority
granted to it herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants, and their
estates and beneficiaries.
ARTICLE 4.
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 SHARES AVAILABLE FOR AWARDS. The aggregate number of Shares which may
be issued or used for reference purposes under this Plan or with respect to
which Awards may be
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granted shall not exceed 500,000* Shares (subject to adjustment as provided in
Section 4.3), which may be either authorized and unissued Shares or Shares held
in or acquired for the treasury of the Company. Of the aggregate number of
Shares, up to all of such Shares may be issued with respect to Incentive Stock
Option Awards. Upon:
(a) a cancellation, termination, expiration, forfeiture,
or lapse for any reason of any Award; or
(b) payment of an Option Price and/or payment of any taxes
arising upon exercise of an Option with previously acquired
Shares or by withholding Shares which otherwise would be
acquired on exercise or issued upon such payout,
then the number of Shares underlying any such Award which were not issued as a
result of any of the foregoing actions shall again be available for the
purposes of Awards under the Plan.
4.2 INDIVIDUAL PARTICIPANT LIMITATIONS. Subject to adjustment as provided
in Section 4.3 herein, the maximum aggregate number of Shares with respect to
which Options may be granted in any one fiscal year to a Participant shall be
100,000.*
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether
or not such reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company, such
adjustment shall be made in the number and class of Shares available for
Awards, the number and class of and/or price of Shares subject to outstanding
Awards granted under the Plan and the number of Shares set forth in Sections
4.1 and 4.2, as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of
rights; provided, however, that the number of Shares subject to any Award shall
always be a whole number.
ARTICLE 5.
ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan include all
Employees of the Company and its Subsidiaries, as determined by the Committee.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
_________________________________
* amended by Board of Directors resolution dated December 8, 1997
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ARTICLE 6.
STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Employees at any time and from time to time as
determined by the Committee in its sole discretion. The Committee, in its sole
discretion, shall determine the number of Shares subject to each Option,
provided that during any Fiscal Year, no Participant shall be granted Options
covering more than 100,000** Shares. The Committee may grant Incentive Stock
Options, Nonqualified Stock Options, or a combination thereof.
6.2 AWARD AGREEMENT. Each Option shall be evidenced by an Award Agreement
that shall specify the Exercise Price, the expiration date of the Option, the
number of Shares to which the Option pertains, any conditions to exercise of
the Option, and such other terms and conditions as the Committee, in its
discretion, shall determine. The Award Agreement shall specify whether the
Option is intended to be an Incentive Stock Option or Nonqualified Stock
Option.
6.3 EXERCISE PRICE. Subject to the provisions of this Section 6.3, the
Exercise Price for each Option shall be determined by the Committee in its sole
discretion.
(a) NONQUALIFIED STOCK OPTIONS. In the case of a Nonqualified
Stock Option, the Exercise Price shall be not less than the
Fair Market Value of a Share on the Grant Date.
(b) INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock
Option, the Exercise Price shall be not less than one hundred
percent (100%) of the Fair Market Value of a Share on the
Grant Date; provided, however, that if on the Grant Date, the
Employee (together with persons whose stock ownership is
attributed to the Employee pursuant to Section 424(d) of the
Code) owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of
its Subsidiaries, the Exercise Price shall be not less than one
hundred and ten percent (110%) of the Fair Market Value of a
Share on the Grant Date.
(c) SUBSTITUTE OPTIONS. Notwithstanding the provisions of
Sections 6.3(a) and 6.3(b), in the event that the Company or
a Subsidiary consummates a transaction described in Section
424(a) of the Code (e.g., the acquisition of property or stock
from an unrelated corporation), persons who become Employees on
account of such transaction may be granted Options in
substitution for options granted by their former employer. If
such substitute Options are granted, the Committee, in its sole
discretion and
_________________________________
** amended by Board of Directors resolution dated December 8, 1997
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consistent with Section 424(a) of the Code, shall determine
the Exercise Price of such substitute Options.
6.4 EXPIRATION OF OPTIONS. Subject to the provisions of Section 6.8,
Options granted pursuant to this Article 6 shall expire in accordance with this
Section 6.4.
(a) EXPIRATION DATES. Each Option granted pursuant
to this Article 6 shall terminate no later than the first to
occur of the following events:
(i) The date for termination of the Option set forth in
the written Award Agreement; or
(ii) The expiration of ten (10) years from the Grant Date; or
(iii) The expiration of three (3) months from the date of
the Participant's termination of employment for a
reason other than the Participant's death, Disability,
or for Cause; or
(iv) The expiration of one (1) year from the date of the
Participant's termination of employment by reason of
death or Disability; or
(v) The date of termination of employment in the event of
a termination for Cause.
(b) EFFECT OF DEATH, DISABILITY, RETIREMENT AND EARLY
RETIREMENT. Notwithstanding Section 6.4(a) or 6.5:
(i) Upon the death or Disability of the Participant, each
Option held by the Participant shall become
exercisable in full (without regard to any installment
or other vesting provisions thereof) and shall be
exercisable thereafter until the first to occur of the
dates set forth in Section 6.4(a)(i), (ii) or (iv).
(ii) Upon Retirement, each Option held by the Participant
shall become exercisable in full (without regard
to any installment or other vesting provisions thereof)
and shall be exercisable by the Participant until the
earlier of the dates set forth in Section 6.4(a)(i),
(ii) or (iv).
(iii) Upon Early Retirement, each Option held by a
Participant who from such Early Retirement retires
and agrees to remain retired from the industry (a
"sunset arrangement") shall become exercisable in full
(without regard to any installment or other vesting
provisions thereof) and shall be exercisable by the
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Participant until the earlier of the dates set forth in
Section 6.4(a)(i), (ii) or (iii).
(iv) In the event of the death of the Participant after his
or her termination of employment, but prior to the
expiration of his or her Options, then his or her
Options shall be exercisable in full by his or her
beneficiaries until the earlier of the date such Options
would have expired had the Participant survived until such
date or the expiration of one (1) year from the date of
the Participant's termination of employment.
(c) COMMITTEE DISCRETION. Subject to the limits of Section
6.4(a) and (b) above, the Committee, in its sole
discretion shall provide in each Award Agreement when each
Option expires and becomes unexercisable. In the event the
Award Agreement does not set forth such provisions, then the
Option evidenced thereby shall expire and become
unexercisable in accordance with the provisions of Section
6.4 (a) and (b) above.
6.5 EXERCISABILITY OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in its sole discretion and prescribe in the Award
Agreement. In the event that the Award Agreement does not set forth times with
respect to the exercisability of Options, then each such Option granted to an
Employee shall become exercisable on the first anniversary of the Grant Date to
the extent of one-fourth (25%) of the Shares which may be purchased under the
Option (rounded down to the nearest whole number), and on each of the second,
third and fourth anniversary of the Grant Date to the extent of an additional
one-fourth (25%) of such Shares. After an Option is granted, the Committee, in
its sole discretion, may accelerate the exercisability of the Option.
Notwithstanding the foregoing, upon a Change in Control or an event described
ion Section 6.4(b)(i), (ii) or (iii), any and all Options granted under this
Article 6 shall become immediately exercisable in full.
6.6 PAYMENT. Options shall be exercised by the Participant's delivery of
a written notice of exercise to the President of the Company (or its designee),
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be payable to
the Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired
Shares having an aggregate Fair Market Value at the time of exercise equal to
the total Exercise Price, or (b) by any other means which the Committee, in its
sole discretion, determines to both provide legal consideration for the Shares,
and to be consistent with the purposes of the Plan.
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As soon as practicable after receipt of a written notification of exercise
and full payment for the Shares purchased, the Company shall deliver to the
Participant (or the Participant's designated broker), Share certificates (which
may be in book entry form) representing such Shares.
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option as it
may deem advisable, including, but not limited to, restrictions related to
applicable Federal securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded, or any blue sky
or state securities laws.
6.8 CERTAIN ADDITIONAL PROVISIONS FOR INCENTIVE STOCK OPTIONS.
(a) EXERCISABILITY. The aggregate Fair Market Value
(determined on the Grant Date(s)) of the Shares with respect
to which Incentive Stock Options are exercisable for the first
time by any Employee during any calendar year (under all plans
of the Company and its Subsidiaries) shall not exceed
$100,000, provided, however, that in the event that
acceleration of the exercisability of an Incentive Stock
Option would cause such $100,000 limitation to be exceeded,
then those Incentive Stock Options up to such $100,000
limitation (determined in the order such Options were granted)
shall continue to be Incentive Stock Options and the remainder
shall be Nonqualified Stock Options.
(b) TERMINATION OF EMPLOYMENT. No Incentive Stock Option may be
exercised more than three (3) months after the
Participant's termination of employment with the Company and
all Subsidiaries for any reason other than Disability or death
(in which case the Incentive Stock Option may be exercised
until the expiration of one (1) year from the date of death or
disability), unless (i) the Participant dies during such
three-month period, in which case the Incentive Stock Option
may be exercised by his or her beneficiaries until the
expiration of one (1) year from the date of death, or (ii) the
Award Agreement or the Committee permits later exercise,
provided that if the Incentive Stock Option is not exercised
within such three (3) month or one (1) year periods, whichever
is applicable, then such Incentive Stock Option shall become a
Nonqualified Stock Option.
(c) EMPLOYEES ONLY. Incentive Stock Options may be granted only
to individuals who are Employees (other than consultants) on
the Grant Date.
(d) EXPIRATION. No Incentive Stock Option may be exercised
after the expiration of ten (10) years from the Grant Date;
provided, however, that if the Option is granted to an
Employee who, together with persons whose stock ownership is
attributed to the Employee pursuant to section 424(d)
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of the Code, owns stock possessing more than 10% of the total
combined voting power of all classes of the stock of the
Company or any of its Subsidiaries, the Option may not be
exercised after the expiration of five (5) years from the
Grant Date.
ARTICLE 7.
BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Secretary of the Company during the
Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate.
ARTICLE 8.
DEFERRALS
The Committee may permit a Participant to defer such Participant's receipt
of the delivery of Shares that would otherwise be due to such Participant upon
the exercise of any Option.
ARTICLE 9.
LIMITED TRANSFERABILITY
The Committee may, in its discretion, authorize all or a portion of the
Options (other than Incentive Stock Options) granted to a Participant to be on
terms which permit transfer by such Participant to (a) the spouse, children or
grandchildren of the Participant ("Immediate Family Members"), (b) a trust or
trusts for the exclusive benefit of such Immediate Family Members, or (c) a
partnership in which such Immediate Family Members are the only partners,
provided that (i) there may be no consideration for any such transfer, (ii) the
Award Agreement pursuant to which such Options are granted expressly provides
for transferability in a manner consistent with this Article 9, and (iii)
subsequent transfers of transferred Options shall be prohibited except those in
accordance with Article 7. Following transfer, any such Options shall continue
to be subject to the same terms and conditions as were applicable immediately
prior to transfer, provided that for purposes of Article 7 hereof the term
"Participant" shall be deemed to refer to the transferee. The provisions of
Article 6 relating to the period of exercisability and expiration of the Option
shall continue to be applied with respect to the original Participant, and the
Options shall be exercisable by the transferee only to the extent, and for the
periods, set forth in said Article 6.
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ARTICLE 10.
AMENDMENT, MODIFICATION, AND TERMINATION
10.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part; subject to any requirement of stockholder approval imposed by
applicable law, rule or regulation.
10.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
ARTICLE 11.
WITHHOLDING
11.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of the Plan.
11.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options, or upon any other taxable event arising as a result of
Awards granted hereunder, Participants may elect to satisfy the withholding
requirement, in whole or in part, by having the Company withhold Shares having
a Fair Market Value on the date the tax is to be determined equal to the
minimum statutory total tax which would be imposed on the transaction. All
such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Committee, in its sole discretion, deems appropriate.
ARTICLE 12.
SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect merger,
consolidation, purchase of all or substantially all of the business and/or
assets of the Company or otherwise.
12
<PAGE> 13
ARTICLE 13.
LEGAL CONSTRUCTION
13.1 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the plural.
13.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
13.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
13.4 GOVERNING LAW. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
13
<PAGE> 1
EXHIBIT 10.5
L E A S E
FROM
THE COSMOPOLITAN BANK OF CHICAGO,
Trustee, under trust agreement dated
April 21, 1958 and known as
Trust number 7527,
Lessor
TO
ANGELO ESPOSITO,
Tenant
<PAGE> 2
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
L E A S E
This agreement, made this 24th day of December, 1958, by and between THE
COSMOPOLITAN BANK OF CHICAGO, Trustee, under trust agreement dated April 21,
1958 and known as trust number 7527, party of the first part, hereinafter
designated and referred to as the lessor, and ANGELO ESPOSITO, of Oak Park,
Cook County, Illinois, party of the second part, hereinafter designated and
referred to as the tenant or lessee, witnesseth as follows:
1. (Term) In consideration of the rents, taxes and assessments to be paid
by the tenant, and in consideration of the performance by the tenant of the
covenants and agreements by it to be performed, all as hereinafter provided,
the party of the first party, lessor, does hereby demise, lease and lets to the
tenant, and tenant hereby hires and takes from the party of the first part,
lessor, for the term of Fifty (50) years from and including January 1, 1959,
through December 31, 2009, to wit:
Lot 4 in block 25 in Mills and Sons Green Fields Subdivision of
the East Half of the South East Quarter and of the South Half of
the Northwest Quarter of the South East Quarter and of the South
half of the South West Quarter of the Northeast Quarter and of the
South half of the South East Quarter of the Northwest Quarter of
Section 36, Township 40 North, Range 13, East of the Third
Principal Meridian, in Cook County, Illinois, commonly known as
1610 Harlem Avenue, Elmwood Park, Illinois and being improved with
a one story brick building known as Peter Pan Restaurant
together with the hereditaments and appurtenances thereunto belonging or in any
wise appertaining thereto. Said premises are leased subject to the terms and
conditions of the present lease now existing and running to Peter Pan
Restaurant.
2. (Covenant for Quiet Enjoyment) The lessor hereby covenants and agrees
that the tenant shall and will upon the payment of the rents, taxes and
assessments and all other sums of money herein provided to be paid by the
tenant, and upon fully observing and performing the covenants and agreements
herein provided to be observed and performed by the tenant, quietly and
peaceably possess and enjoy said above described premises subject only to the
terms and conditions of the present lease now existing and running to Peter Pan
Restaurant, during the full term of this lease, unless said lease be sooner
terminated under and in accordance with any of the provisions therein
contained, providing for such termination. Nothing in this lease shall affect
the validity of said lease to Peter Pan Restaurant.
3. (Amount of Rent) The tenant covenants that he will pay to the lessor
or lessor's beneficiaries as rent for the said demised premises the following
sums and amounts at the times
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and in the manner following, to wit: An Annual rent of Twenty Thousand
($20,000.00) and no/100 Dollars per year from January 1, 1959 through December
31, 1964; Twenty-two Thousand ($22,000.00) and no/100 Dollars per year from
January 1, 1965 through December 31, 1969; Twenty-four Thousand $24,000.00) and
no/100 Dollars per year from January 1, 1970 through December 31, 1974;
Twenty-six Thousand ($26,000.00) and no/100 Dollars per year from January 1,
1975 through December 31, 1979; and Twenty-eight ($28,000.00) Thousand and
no/100 Dollars per year from January 1, 1980 to the expiration of the term
created by this lease. It is agreed by the parties hereto that the said sums
as hereinabove stated are minimum rentals and sums to be paid by the tenant and
the rental sums shall be determined as follows: At the end of every five year
period after the commencement of this lease, the value of the purchasing power
of the United States Dollar shall be computed in accordance with the National
Cost of Living Index setting as a base date, January 1, 1959 and the tenant
agrees to pay for subsequent years following such evaluation, such sums for
rentals an amount equivalent to the purchasing power of Twenty-Thousand
($20,000.00) Dollars as of the base date, namely, January 1, 1959 or such sums
as hereinabove set forth, whichever is greater. Said annual rental shall be
paid in annual quarterly installments on the 1st day of each and every January,
April, July and October of each year during the full term of this lease. The
payment of the quarterly installment is for rental in advance for the quarter
following such payment.
4. (Tenant to Pay Taxes, etc.) The tenant further agrees that he will, as
additional rent, pay all water rates, water taxes, real estate taxes and
assessments, general and special, or ordinary and extraordinary, of every kind
and nature whatsoever (excepting any and all taxes on incomes, gifts, legacies,
inheritances, devises, mortgages or conveyances, of the estates of the lessor's
beneficiaries in said demised premises) which have been or which shall during
said term be levied, assessed or otherwise imposed upon said demised premises,
and the building or improvements thereon, or which may hereafter during the
said term be erected or constructed thereon, it being understood that the first
general taxes to be paid by the tenant shall be the taxes levied for and
assessed for the year, 1959, and that the last taxes to be paid by the tenant
shall be taxes levied and assessed for the year, 2009. The tenant agrees that
he will pay such taxes, impositions and assessments at least five days before
any fine, penalty, interest or costs under the laws from time to time in force
may be added thereto for the non payment thereof. The tenant shall from time
to time deliver to the lessor receipts showing the payment of all such rents,
taxes and assessments within 60 days after the respective payments evidenced
thereby. It is the intent of this lease that the lessor is to receive the
rental above specified net and clear of all costs and charges arising from or
relating to said demised premises, and that the tenant is to pay all charges
and expenses of every nature that may be imposed upon said demised premises and
its appurtenances in any manner during the term of this lease and that may
arise during the term of this lease from the use and misuse of said demised
premises in any manner.
5. (Rent to be Paid in U. S. Legal Tender) All payments of rent and all
other sums of money that may become due and payable to the lessor or lessor's
beneficiaries under the provisions of this lease shall be made by the tenant in
legal tender of the United States of America, and it is expressly understood
and agreed by and between the parties hereto that no acceptance by the lessor
or lessor's beneficiaries of any currency, check or other money of value
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<PAGE> 4
whatsoever in payment of any installment or installments or rent or of any
other sum or sums of money that may become due or payable to the lessor under
any of the conditions or provisions of this lease shall be construed to be a
waiver on the part of the lessor of its right to require the payment of any
installment or installments or other moneys thereafter falling due to be made
in legal tender of United States of America as above specified. Each of the
payments to be made hereunder shall be paid at such places in the County of
Cook, Illinois as the lessor shall designate by written notice to be given to
the tenant at least 20 days prior to the date on which such payment shall fall
due, and whenever such notice is not given to the tenant at least 20 days prior
to such payment day the tenant shall make such payment at the place of payment
named in the last preceding notice given by the lessor as aforesaid.
6. (Tenant to at all Times Maintain Buildings on Demised Premises) The
tenant agrees that he will at all times during the continuance of this lease
keep and maintain in good repair all buildings and improvements on said demised
premises and in the event any building or buildings now erected on said demised
premises or improvements thereto, or any buildings erected in place thereof are
injured or destroyed, the tenant, as soon as the same may be done, will repair
such injury, or in case he does not repair the same he will rebuild said
building or buildings upon said premises in as good condition and value as they
were before such injury or destruction. And the said tenant shall commence
such rebuilding or repairing as soon as practicable after such injury or
destruction, and complete the same without delay. The tenant further agrees
that all necessary moneys received by him as the proceeds of insurance policies
against loss by fire or lightning on the buildings and improvements now or
hereafter during the term of this lease erected on the said demised premises on
account of destruction or injury to same by fire or lightning shall be devoted
to repairing or rebuilding such injured or destroyed building or the erection
of a new building on the demised premises. All moneys as above received in
excess of the amount required to make the repairs or rebuilding as aforesaid
shall be paid over to the tenant. All improvements and new buildings shall be
of a good and substantial character, suitable to the locality, and such as will
not tend to decrease the value of the land hereby leased, and the tenant shall,
before making any improvements or erecting any buildings notify the lessor of
the contemplated improvement and shall furnish the lessor with a certificate of
a competent architect in charge of the work certifying to the cost of such
improvement, and the tenant shall also furnish the lessor with a detailed
statement of the cost of such improvement, and shall, upon the demand of the
lessor, furnish to it for examination the contract or contracts under which the
work is done and the vouchers showing the payments made therefor.
Notwithstanding the above or any other provisions in this lease, the tenant
shall be required to erect or maintain upon said demised premises a building,
or buildings in value and cost of the replacement cost of the present building
on the demised premises or greater and shall be complete and tenantable and
reasonably suitable for use upon said premises: Provided that any building so
erected or restored shall provide for automobile parking facilities to the same
extent as provided by the present building on the demised premises. Nothing in
this paragraph shall restrict the tenant's absolute right to remove, alter or
repair said building, provided the conditions of this lease are observed by the
tenant.
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<PAGE> 5
7. (Conditions upon Which Tenant may Destroy Present Building) The tenant
also agrees to maintain the building on said demised premises in a reasonable
state of repair at his own expense until he comes to remove the same for the
purpose of rebuilding as in this lease provided, and the lessor agrees, when
the said tenant shall have given the bond provided for in paragraph 9 of this
lease, for the purpose of commencing the removal of said building and erecting
any new building or buildings permitted or provided to be erected hereunder,
the tenant may wreck the building now upon said premises covering the land on
which such new building is to be erected and have the wreckage of such building
so to be wrecked and the material therefrom for his own use: Provided, that
the erection of any new building shall be done in accordance with the terms and
conditions of paragraph 6 of this lease.
8. (Tenant to Pay for All Labor and Materials and Keep Building or
Buildings from Liens) In case of the erection of any building or buildings on
said demised premises, or any additions thereto, or of repair, alteration or
improvement of any building or buildings now on said demised premises or
hereafter placed thereof, the tenant will pay for all labor performed and
material furnished in or about such erection, repairs, alterations or
improvements, and keep said demised premises and buildings and improvements,
thereon at all times free and clear of all liens for labor or materials
furnished in and about such erection, repairs, alterations or improvements, and
he will defend at his own cost and expense each and every lien asserted or
claim filed against said demised premises or buildings or improvements thereon,
or any part thereof for labor claimed to have been so performed or material
claimed to have been so furnished, and pay each and every judgment made or give
against said premises, or any part thereof or the buildings or improvements,
thereon or against the lessor or the tenant on account of any such lien, and
indemnify and save harmless the lessor and lessor's beneficiaries from all and
every claim and action on account of such claim, lien or judgment, arising out
of or connected with such act or omission to the tenant, his successors or
assigns, or any of his agents, employees or contractors, in or about such
erection repairs, alterations or improvements.
9. (Tenant to Give Indemnity Bond) In case and before the tenant shall
commence the erection and building of any building or buildings, herein agreed,
provided or permitted to be built by the tenant, on said demised premises, and
in case and before the tenant shall at any time commence the erection of any
new building or any addition to any building on said demised premises, and
before the tenant shall at any time make any repairs or alterations to such
building or buildings, the tenant will in each and every case, execute and
deliver to said lessor a bond in a sum equal to the architect's estimate of the
cost of such building or buildings and such additions, alterations and repairs,
which bond shall be executed by the tenant as principal, and by a responsible
surety company authorized to do business in the State of Illinois as surety or
by other surety or sureties satisfactory to the lessor. Said bond shall be
conditioned that the tenant shall proceed forthwith with the erection and
complete the erection of said building or buildings or additions within the
usual time necessary and customary to complete same from the commencement
thereof, and shall also be conditioned for the performance by the tenant of all
the agreements contained in paragraph 8 of this lease in so far as they apply
to such building, buildings, or additions so about to be erected, or such
alterations or repairs so to be made, said bond to be discharged by the lessor
upon the completion of said building or buildings free and
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<PAGE> 6
clear of all liens and the expiration of the time within which liens therefore
could be asserted. Only one copy of the bond herein provided for and of the
architect's certificate and statement of cost of proposed improvements need be
furnished by the tenant to the lessor, and said documents may be so furnished
by delivery to the party to whom payment of rent is made as provided for in
this lease.
10. (Further Provisions of Indemnity Bond) The tenant further agrees that
each and every bond given or furnished in pursuance of paragraph 9 of this
lease, in addition to the conditions and provisions provided to be contained
therein by paragraph 9 of this lease, shall also contain the following
conditions and agreements:
(1.) That a judgment declaring any claim for labor or material a lien on
said land, or any part thereof, or any building, structure or improvement
thereon, shall constitute a breach of the conditions of such bond, and that an
action may forthwith be maintained on such bond for the amount of said judgment
and without the payment of discharge of such judgment by lessor provided that
if an appeal is taken from any such judgment, said action by the lessor on said
bond shall be stayed for such reasonable time as may be necessary for the
determination of said appeal, and if such judgment is reversed said action
shall be dismissed without prejudice and without costs and disbursements: and
(2.) That if in any action a judgment be obtained declaring any claim for
labor or materials a lien on said land or any part thereof, or any building,
structure or improvement thereon, the proceedings in said action, and the
records and files therein, certified by the clerk of the court in which such
action is had, shall be conclusive evidence as between the parties hereto of
all said proceedings and of all matters in said records and files set forth,
with the same force and effect as if said principal and sureties to said action
there appeared and defended therein.
11. (Tenant to Observe Municipal Regulations and Indemnify Lessor or
Lessor's Beneficiaries) The tenant covenants that he will erect and at all
times keep in safe and good condition and repair and in all respects as now is
or may hereafter be prescribed by law, each and every building, structure or
improvement now on said demised premises or hereafter placed on said demised
premises, and each and every sidewalk, alley, or passageway contiguous or
appertaining to said premises, and that he will comply with all provisions of
law relating to the equipment, maintenance and use of such buildings,
structures and improvements and furnish and pay for at his own expense all and
every appliance, safeguard or improvement required by any provision of law of
any owner of such buildings, structures or improvements, and will indemnify and
save harmless the lessor and lessor's beneficiaries for all and every, demand,
action, causes of action and expense, including counsel and attorney's fees, by
reason of failure, to do arising out of or in any way connected with any act or
omission of the tenant or any of his agents, employees, or contractors in and
about the operation, improvement, maintenance, alteration, repair, building or
restoration of any of the buildings, structures or improvements now on said
demised premises, or hereafter placed upon the demised premises, or any of the
sidewalks, alleys or premises, or arising out of or connected with the
assertion or filing of any claim, demand or
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<PAGE> 7
lien against any part of said premises, or arising out of or connected with
any of the covenants, terms, or provisions of this lease, binding upon or to be
observed or performed by the tenant. The tenant covenants with the lessor that
during the term of this lease no part of said premises shall be used in such
manner as to create a nuisance or for any unlawful purpose.
12. (Insurance) The tenant agrees that he will at all times during the
term of this lease, at his own expense, carry insurance on the building or
buildings from time to time on said premises against loss or damage by fire and
lightning in the aggregate amount of at least eighty percent. of the insurable
value thereof: Provided, however, that the amount of such insurance need not
be at any time exceed one hundred per cent. of that part of the value of the
buildings which is reasonable susceptible of being damaged or destroyed by fire
or lightning; but the amount of such insurance shall never be so small as to
make the insured a co-insurer with the insurance company. All such insurance
against fire and lightning shall be written and maintained in responsible
companies satisfactory to the lessor, and loss thereunder in all such policies
shall be made payable in all cases to the lessor, or to a trustee designated as
hereinafter provided, as their interest may appear. Said insurance policies
shall from time to time as written be delivered to the lessor or to such
trustee, the same shall always be so written and delivered at least ten days
before the expiration of the prior insurance policies covering the same and the
entire proceeds thereof, in case of loss, are to be paid to the lessor, or to
such trustee, to be held as collateral security for the payment to the lessor
of the rent, taxes and assessments due or that may become due under the terms
of this lease and for the payment of any and all obligations of the tenant to
the lessor under this lease, and for the repairing, restoration and rebuilding
of the building or buildings on account of the injury or destruction of which
such insurance moneys have been paid. Out of the proceeds of such insurance
policies collected and received by the lessor or by such trustee, there shall
be first paid to the lessor, for its own use and benefit all sums then due and
payable by the tenant under this lease, or which may become due and payable
from the tenant under this lease while said moneys are so held by the lessor,
or such trustee, and the surplus of such proceeds, if any, shall be paid by the
lessor, or such trustee to the tenant when the tenant shall have repaired or
rebuilt such building or buildings so injured or destroyed, so that the same
are in as good condition as the same were prior to such injury and destruction,
or so that they shall be, when repaired or rebuilt, of the character and value
required by the terms of this lease: Provided, however, that no amount shall
be so paid to the tenant until after the completion of such repairing or
rebuilding and the payment by the tenant for all labor and materials used or
furnished in such rebuilding or repairing, and the payment by the tenant of all
claims and demands on account of such repairing and rebuilding, and until the
tenant has furnished to the lessor or such trustee, satisfactory evidence that
all claims and demands for labor or material used or furnished in repairing or
rebuilding such building or buildings have been paid in full, and that no claim
or lien can accrue or be enforced against such building or buildings or said
demised premises on account thereof: Provided, however, that when such
repairing or rebuilding of such building or buildings has been completed, and
the tenant shall have paid for such repairing or rebuilding to such an entent
that the funds in the hands of the lessor, or such trustee, applicable thereto,
are sufficient to pay all amounts remaining unpaid on account of material or
labor furnished or used in such repairing or rebuilding and leave said building
and the demised premises free from all claims, demands, and liens on account of
such repairing or rebuilding and
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<PAGE> 8
the tenant shall produce to the lessor or such trustee, satisfactory evidence
thereof, then and in such even, but not otherwise, the amounts in the hands of
such lessor, or such trustee, applicable thereto as aforesaid, shall be applied
by the lessor, or such trustee, for the payment of such claims, demands or
liens for labor er material furnished or used in such rebuilding or repairing.
It is agreed between the parties hereto, however, that after the tenant shall
have furnished to the lessor the bond provided for in paragraphs 9 and 10 of
this lease for the rebuilding or repairing of the building or buildings injured
or destroyed by fire or lightning, and if such bond is in an amount of not less
than the amounts collected on the policies of insurance on account of such
injury or destruction, the lessor or said trustee shall, if, in the exercise of
a reasonable judgment, they or he deems that the same can be safely done
without loss to the lessor, out of the amounts so collected on such policies of
insurance (after first payment to the lessor all amounts then due to it), on or
before the 10th day of each month, at the request of tenant, pay out to the
contractor or contractors, doing such repairing or rebuilding ninety percent.
of the amount due for material and labor actually furnished by such contractor
or contractors during the month next previous in doing the repairing or
rebuilding of the building or buildings so injured or destroyed. The amount so
to be paid to be evidenced by the certificate of the architect in charge of the
work of rebuilding or repairing, but no amount shall be so paid if there shall
then have been asserted or filed any mechanic's lien against said premises or
if the tenant shall then be insolvent. On written demand of the tenant, served
on the lessor, that the tenant desires that a trustee be designated and
appointed under this paragraph of this lease, the lessor shall, within thirty
days after the service of such written notice on it, serve on the tenant a
written notice, designating three corporations in Cook County, Illinois, either
trust companies or banks, or both, to act as trustee under the terms of this
paragraph of this lease, and within thirty days after the service of such
notice on him the tenant shall designate, by written notice served on the
lessor, one of the three corporations so designated by the lessor to act as
such trustee under this paragraph of this lease to hold the insurance policies
under the provisions of this paragraph of this lease, and to collect all moneys
payable on such insurance policies in case of loss, and to hold and pay out the
moneys collected thereon in accordance with the terms and provisions of this
paragraph of this lease. The tenant shall pay for the services and expenses of
such trustee and shall reimburse the lessor for any such services or expenses
which it may pay.
The tenant further agrees that he will at all times during the term of
this lease, at his own expense, carry sufficient Public Liability and Property
Damage insurance to protect the lessor in accordance with the terms and
conditions of this lease. All such further Public Liability and Property
damage insurance shall be written and maintained in responsible companies
satisfactory to the lessor in such amounts as agreed upon with the lessor from
time to time.
13. (Injury by Fire or Elements not to Terminate This Lease) In case any
of the Buildings now or hereafter placed on said demised premises are injured
or destroyed or rendered untenantable by fire, the elements or any other cause,
such destruction or injury shall not operate to terminate this lease, but this
lease shall continue in full force and effect, but the tenant must thereupon
repair or rebuild at the time and in the manner as in this lease provided.
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<PAGE> 9
14. (Interest on Overdue Payments) The tenant will pay to the lessor
interest at the rate of six per cent. per annum on every payment of whatsoever
kind by this lease to be made to the lessor by the tenant from the time such
payment shall become due and payable until the same are paid.
15. (Delay in Building on Account of Strikes, etc.) If the tenant shall
proceed in good faith with reasonable diligence with the repair, rebuilding,
erection or construction of any building or buildings upon said demised
premises, under any of the provisions of this lease, and shall be delayed in
the construction thereof by or on account of any strike, act of God, or public
enemy, or other unavoidable contingency, whereby it shall be unable to procure
the necessary building material or labor therefor, the period of such necessary
delay shall not be deemed to be any part of the time limit in which the tenant
is required to complete the repairing, rebuilding or erection of such building
or buildings.
16. (Conditions upon Which Buildings may be Destroyed or Removed) No
buildings now on said demised premises or which shall be placed on said demised
premises by the tenant shall be removed therefrom, injured or destroyed without
the consent in writing of the lessor, except that the tenant may injure, remove
or destroy any building or buildings now on said demised premises or which
shall be placed by it on said premises for the purpose of forthwith replacing
as herein provided the same with a new building or buildings at a cost as
herein provided and equal or greater than the replacement cost of such building
or buildings to be removed or destroyed, or repairing, altering or bettering
such building, and only upon first giving to the lessor, before commencing such
injury, destruction or removal, bond as provided in paragraph 9 of this lease.
All buildings and improvements made on said leased premises shall be and remain
the property of the lessor and a part of said leased premises: Provided, that
all buildings so erected shall be in accordance with the conditions of
paragraph 6 of this lease and all other terms in this lease applicable thereto.
17. (Lessor May Pay Lien, etc.) In case the tenant shall fail or neglect
to pay any judgment against the tenant on the demised premises, which shall
become and be a lien upon or against said premises, or on the interest of the
tenant or lessor therein, or any lien thereon for labor performed or materials
furnished, or for any repairs or improvements thereon made or suffered by the
tenant or any one holding under him, or in case the tenant shall fail to pay
any taxes, assessments, or other charges on said premises, which the tenant is
obligated to pay by the terms hereof, or fail to effect any insurance as herein
provided, or to deliver any of said insurance policies as hereinbefore
provided, or to make repairs as herein provided, then in addition to all other
remedies by this lease or by law provided, the lessor may at its election pay
any such judgment, taxes, assessments or other charges, effect such insurance
and make such repairs, and the amount or amounts so paid or expended therefor
shall thereupon become due and payable immediately from the tenant to the
lessor, with interest at the rate of six per cent. per annum from the time such
payment or payments or expenditures were made by the lessor. No payment or
expenditures made by the lessor under this paragraph shall be a waiver of any
breach by the tenant of any covenants or agreements contained in this lease.
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<PAGE> 10
18. (Tenant May Contest the Validity of Tax Liens) It is agreed that the
tenant, upon giving written notice thereof to the lessor, shall not be required
to pay, discharge or remove any tax, assessment, tax title, or any judgment or
lien against the demised premises, or against the tenant's interest therein or
any part thereof, so long as the tenant shall in good faith and with diligence
at his own expense, contest the same or the validity thereof by appropriate
legal proceedings, and that the pending of such legal proceedings the lessor
shall not have the right to pay, remove or discharge the taxes, assessments,
tax lien, tax title, mechanic's lien or judgment thereby contested unless
necessary to protect the title to said premises, and that such delay of the
tenant in payment of same until final determination of such disputed matter
shall not be deemed a default in the conditions of this lease: Provided that,
on demand of the lessor, the tenant shall furnish indemnity satisfactory to the
lessor's beneficiaries against any loss or damage on account thereof.
19. (Persons and Property on Premises at Rist of Tenant) All property of
every kind which may be on said demised premises during the term hereof shall
be at the sole risk of the tenant or those claiming under it, and the lessor or
lessor's beneficiaries shall not be liable to the tenant, or any other person
whatsoever, for any injury, loss or damage to any person or property in or upon
said demised premises, or upon the sidewalks and alley ways contiguous thereto.
The tenant hereby covenants and agrees to assume all liability for or on
account of any injury, loss or damage above described, and to save the lessor
or lessor's beneficiaries, harmless, therefrom.
20. (Lessor May Enter and View Premises) The lessor may once every six
months during the term hereby created, and oftener if it shall deem it
necessary, by itself or duly authorized agents, enter upon and view at any
reasonable hour the said demised premises, and each part thereof, and examine
and ascertain the condition of all buildings, structures and improvements
thereon.
21. (Lessor May Terminate Lease in Case of Default) If the tenant shall
make default in the payment of the whole or any part of any rent, taxes,
charges, or assessments, or any part or installment thereof in this lease
provided to be paid by him, when the same shall fall due under the provisions
hereof, and such default shall continue for the space of thirty days after such
rents, taxes, charges or assessments, or any part thereof, shall become payable
under the terms of this lease, or if the tenant shall make default in the
performance of any covenant or agreement on the part of the tenant to be
performed other than those relating to the payment of the rents, taxes and
assessments, the lessor, in addition to all other remedies provided by this
lease, or now or hereafter provided by law, may at its option give the tenant
notice in writing that it declares this lease, and rights thereunder granted to
the tenant, terminated unless the tenant shall within the time in the next
succeeding paragraph specified, make the payment or payments or perform the
covenant or agreement in respect of which the tenant shall then be in default.
Said notice shall be subscribed by the lessor, or its agent, and shall specify
the sum or sums of money on account of the nonpayment of which declaration or
termination shall be made, or the covenant or agreement on account of the
non-performance of which such declaration or termination shall be made, and
shall also specify the time after the service of such notice when such
termination shall occur, which notice shall be as in the next succeeding
paragraph hereof provided; and at the
-9-
<PAGE> 11
expiration of said time after the service of said notice this lease and all
rights of the tenant hereunder shall be terminated and ended, and all
buildings, structures and improvements on said demised premises shall remain
attached to the freehold and be a part of and become the property of the
lessor, and the lessor shall have the right of immediate re-entry upon the
demised premises, and all thereof, and the right to repossess the said premises
and to have and to enjoy the same, together with all the buildings, structures
and improvements thereon as fully as if this lease had never been made, unless
within the said specified time after the service of said notice the tenant
shall (a) pay the sum or sums for the nonpayment of which such termination
shall have been declared, with interest at the rate of six per cent. per annum
as herein provided; (b) perform each and every covenant or agreement for the
non-performance of which such termination shall have been declared; (c) pay the
sum or sums not specified in said notice becoming due and payable by the tenant
to the lessor under the provisions of this lease after the service of said
notice and before the expiration of the time specified in said notice; and (d)
pay any and all reasonable expense, including counsel and attorney's fees of
not less thant twenty-five Dollars that the lessor shall have incurred in and
about the preparation and service of such notice.
22. (Time of Notice Period) If the said default shall consist in the
failure to make payments of rent, the time specified in said notice shall be
five (5) days. If the said default shall consist in the failure to procure and
deliver any policy or policies of insurance, as provided in this lease or if
the said default shall consist in the failure to furnish a bond or bonds as
herein provided, the time specified in said notice shall be twenty (20) days.
If such default shall consist in the failure to make payments of money, or any
part of the money, or any installment thereof, herein provided to be paid by
the tenant for taxes, assessments or otherwise by the terms of this lease, the
time specified in such notice shall be thirty (30) days. If the default shall
consist in the failure to build or rebuild, and complete any building or
buildings required to be built, constructed or rebuilt by the tenant under the
terms of this lease, the time specified in such notice shall be six (6) months.
If such default shall consist in the failure to perform any covenant or
agreements to be performed by the tenant other than those hereinbefore
specially mentioned, the time specified in such notice shall be sixty (60)
days. The lessor may give a separate notice for each default in respect to
which it is entitled to give a notice under the provisions of this lease or it
may join in such notice several such defaults and in the last-mentioned case it
shall specify in said notice the proper time, as provided in this paragraph in
respect of each default named in said notice and the lessor, after serving the
notice in respect to one or more such defaults, may serve another notice or
notices in respect to other defaults, without waiving or withdrawing any of
said notices or in any manner affecting the force or validity of any of said
notices.
23. (Tenant to Surrender Premises on Termination of Lease) At the
termination of the term hereby demised, either by forfeiture, default or lapse
of time, the tenant shall surrender the demised premises to the lessor in as
good condition and repair as they are required to be kept in by the tenant by
the provisions of this lease, except as herein otherwise expressly provided.
In the event that during the last three (3) years of the term of this lease,
the buildings then upon said lands may be destroyed or so damaged by fire or
lightning as to render the same wholly untenantable, if the tenant shall have
maintained and there shall be paid to the lessor or trustee the insurance
required to be maintained by the terms of this lease, then the tenant may, at
his
-10-
<PAGE> 12
option, upon giving notice to the lessor of his intention within ten (10)
days after any such damage or destruction occurs, terminate this lease and all
liability hereunder, and surrender possession of said demised premises to the
lessor and the lessor shall thereupon keep and maintain, for its own use the
insurance moneys collected on account of such damage or destruction. That is,
the lessor shall thereupon keep and maintain, for its own use the insurance
moneys collected on account of such damage or destruction and the tenant hereby
covenants to release and pay over all claims in said insurance moneys so
collected on account to the lessor.
24. (Lessor may Re-enter) Upon such determination of this lease, whether
by lapse of time or otherwise, the lessor may forthwith, without demand upon
the tenant and without process of law, re-enter said demised premises and
remove all persons and effects therefrom using such force as may be necessary
and resume and retake possession thereof, and the tenant hereby expressly
waives all rights of restoration of the demised premises after re-entry or
after a judgment of possession thereof given by law.
25. (How Lease to be Changed) It is further covenanted and agreed that
none of the covenants, terms or conditions of this lease shall in any manner be
altered, waived, changed or abendoned except by written instrument, signed,
sealed, acknowledged and delivered by the parties hereto, and not otherwise,
and no act or acts, omission or omissions or series of acts or omissions, or
waiver, acquiescence or forgiveness by the lessor as to any default in or
failure of performance either in whole or in part by the tenant as to any of
the covenants, terms or conditions of this lease, shall be deemed or construed
to be a waiver by the lessor of the right at all times in the future to insist
upon the full and complete performance by the tenant of each and all the
foregoing covenants, terms and conditions thereafter to be performed according
to the provisions of this lease in the same manner and to the same extent as
the same are herein covenanted to be performed by the tenant.
26. (Service of Notices under this Lease) Whenever any notice is given
under the provisions of this lease by the tenant to the lessor, such notice
shall be delivered personally to the lessor if it can be found in Cook County,
Illinois; if lessor cannot be found therein then by mailing the same, postage
prepaid, to such lessor, to the person to whom the last payment of rent has
been made, at the last designated address by such lessor for the payment of
rent. Whenever any notice is given under the provisions of this lease by the
lessor to the tenant, such notice shall be delivered personally to the tenant
if he can be found within said Cook County, Illinois, or if he cannot be found
therein then by mailing the same, postage prepaid, to such tenant at the last
place of residence of the tenant whereof the lessor has notice or knowledge,
and if the lessor has no notice or knowledge of such place of residence, then
by mailing such notice, postage prepaid, addressed to such tenant at the
address of the demised premises, and delivering a copy thereof to a person of
suitable age and discretion then in the actual occupancy of some part of the
buildings situated on the demised premises, if any such person shall be in such
occupancy. Whenever, in respect to any notice under this lease, it shall be
necessary or proper to prove that the lessor or tanant cannot be found in said
county of Cook, Illinois, then if the notice is placed in the hands of the
sheriff of said county for service, such proof may be made by the certificate
of said sheriff that he had made diligent search for the lessor or tenant, as
the case may be, and
-11-
<PAGE> 13
that the party for whom such search has been made cannot be found in said
county. Such certificate shall be prima facie evidence of the matters
therein stated. The lessor or tenant may from time to time by written notice
to the other designate an agent residing in the county of Cook, Illinois, upon
whom the notices provided for in this lease may be served, and thereupon and
until such designation is revoked by notice in writing, all notices given under
the provisions of this lease shall be served upon the agent so designated and
such service shall have the same force and effect in all respects as if the
notice were given to the principal designating such agent. If service of any
notice is made by mailing, the time specified in such notice shall begin to run
from the date when the said notice is mailed. Service on the president or
other head officer, or on the secretary, cashier, treasurer, or managing agent
of the tenant, or of any corporation that may become the assignee of the rights
under this lease of either the lessor or tenant, shall be personal services
under the provisions of this lease.
27. (Assignment of Rents) In the event of the default by the tenant under
any terms and conditions of this lease in the payment of the whole or any part
of any rent, taxes, charges, or assessments, or any part or installment thereof
in this lease provided to be paid by him, when the same shall fall due under
the provisions hereof, and such default shall continue for the space of thirty
(30) days, after the same shall become due and payable under the terms of this
lease, the tenant hereby sells, assigns, transfers and sets over unto the
lessor, all rents, issues and profits now due and which may hereafter become
due under or by virtue of any lease, whether written or verbal, or any letting
of of any agreement for the use and occupancy of all or any part of the demised
premises; it being the intention to hereby establish an absolute transfer and
assignment of all such leases and agreements and all avails thereunder;
Provided that no payment or receipt of rents by the lessor under this paragraph
shall be construed as to be a waiver of any breach by the tenant of any
covenants or agreements contained in this lease.
28. (Confession of Judgment) The tenant does hereby irrevocably
constitute any attorney of any Court of Record in any State of the United
States of America, attorney for him and in his name, from time to time, to
waive the issuance of process and service thereof, to waive trial by jury, to
confess judgment in favor of the lessor, its heirs, executors, adminstrators or
assigns, and against the tenant, for the amount of rent or sums as aforesaid,
which may be in default by virtue of the terms hereof, together with the costs
of such proceedings, and a reasonable sum, for plaintiff's aggorney's fees in
or about the entry of said judgment, and for said purposes to file in said
cause his cognovit thereof, and to make an agreement in said cognovit, or
elsewhere, waiving and releasing all errors which may intervene in any such
proceeding, and waiving and releasing all right of appeal and right to writ of
error, and consenting to an immediate execution upon such judgment. If there
be more than one tenant this warrant of attorney is given jointly and severally
and shall authorize the entry of appearance of, waiver of issuance of process
and trial by jury by and confession of judgment against any one or more of such
tenants, and shall authorize the performance of every other act in the name of
and on behalf of any one or more of such tenants, and the tenant hereby
confirms all that said attorney may lawfully do by virtue hereof.
-12-
<PAGE> 14
29. (Tenant Given First Right to Purchase) It is further agreed that if,
during the terms of this lease, the lessor, his heirs or assigns, should desire
to sell said demised premises, then the tenant, his executors, administrators,
or assigns, shall have the privilege of purchasing the same for the same price
for which the lessor would be willing to sell to any other person; but if the
tenant, his executors, administrators, or assigns, shall not exercise said
option of purchase within twenty (20) days after notice in writing from the
lessor, its heirs or assigns, of such desire to sell, then this lease shall
remain in full force and effect and any sale of the demised premises shall be
subject to the terms and conditions of this lease.
30. (Time of the Essence) Whenever any payment is to be made under this
lease at or within a time state, and whenever any act is to be done under this
lease by either party at or within a stated time, time is of the essence.
31. (Covenants to Run with the Land) All the covenants, provisions,
terms, agreements, and conditions of this lease shall be construed as covenants
running with the land, and shall inure to the benefit of and be binding upon
the heirs, executors, administrators, representatives, successors, and assigns
of the respective parties hereto as fully as upon the said parties.
32. (Exculpatory Clause) This lease is executed by THE COSMOPOLITAN
NATIONAL BANK OF CHICAGO, not personally but as Trustee as aforesaid, in the
exercise of the power and authority conferred upon it and vested in it as such
Trustee and under the express direction of the beneficiaries under a certain
Trust Agreement dated April 21, 1958, and known as Trust number 7527 at THE
COSMOPOLITAN NATIONAL BANK OF CHICAGO, for all provisions understood and agreed
that is expressly made subject. It is expressly understood and agreed that
nothing hereon shall be construed as creating any liability whatsoever against
said Trustee personally, and in particular, without limiting the generality of
the foregoing, there shall be no personal liability to pay any indebtedness
accruing hereunder or to perform any covenant, either express or implied,
herein contained or to keep, preserve or sequester any property of said Trust,
and that all personal liability of Trustee of every sort, if any, is hereby
expressly waived by said Tenant and by every person now or hereafter claiming
any right or security hereunder; and that so far as the said Trustee is
concerned the owner of any indebtedness or liability accruing hereunder shall
look solely to the premises hereby leased for the payment thereof. It is
further understood and agreed that the said Trustee merely holds naked legal
title to the property herein described and has no control over or under this
Lease, and under this Lease assumes no responsibility for (1) the construction
of the Trust premises, (2) the management or control of such property, (3) the
upkeep, inspection, maintenance or repair of such property, (4) the collection
of rents or deposits, security or otherwise, or the rental of such property or
(5) the conduct of any business which is carried on upon such premises. All
representations and undertakings of the Lessor herein are those of its
beneficiaries only, including those as to title.
-13-
<PAGE> 15
IN WITNESS WHEREOF the parties hereof have hereunto set their hands and
seals the day and year first above written.
THE COSMOPOLITAN NATIONAL BANK OF
CHICAGO, Trustee under Trust number
7527 and not personally
By /s/
---------------------------------------
Asst. Vice President and Trust Officer
ATTEST:
/s/ Corinne Bek
- ---------------------------
Assistant Trust Officer Lessor
/s/ Angelo Esposito
--------------------------- (SEAL)
ANGELO ESPOSITO, Tenant
In the Presence of:
/s/ Anthony Caliendo
- ---------------------------
/s/ Norman J. Barry
- ---------------------------
-14-
<PAGE> 16
ASSIGNMENT BY LESSEE
For and in consideration of ONE AND NO/100 DOLLAR ($1.00), and other good
and valuable consideration, the undersigned being the assignee of the original
Lessee described in a certain lease dated the 24th day of December, 1958, by
and between the COSMOPOLITAN NATIONAL BANK OF CHICAGO, as Trustee under a Trust
Agreement dated the 21st day of April, 1958 and known as Trust No. 7527 and
ANGELO ESPOSITO as original lessee, DOES HEREBY ASSIGN all of her right, title,
interest in and to the said lease to the MIDWEST BANK AND TRUST COMPANY, an
Illinois corporation, its successors and assigns and in consideration of the
consent of this Assignment by Lessor DOES HEREBY GUARANTEE the performance by
Assignee, its successors and assigns of all covenants and agreements and
conditions contained in said lease on the part of Lessee or Assignee to be
performed. In the event, however, of the failure of Assignee to perform any of
the promises, covenants and agreements contained in said lease, this Assignment
shall not be taken to modify or limit in any manner the obligation of this
Assignor created by said lease or assignment but Lessor, or its successors or
assigns, may have such remedies against this Assignor, including the confession
of judgment for monies due by this lease provided in the same manner as if this
assignment had not been made. The Assignee of Lessee being the Assignor herein
for consideration aforesaid, hereby waives all right to any and all notices
from Lessor, its successors and assigns of covenants broken by the MIDWEST BANK
AND TRUST COMPANY, an Illinois corporation, or of rents and monies due from
Assignee, its successors or assigns or of any assignment made by it or its
successors and the assigns.
<PAGE> 17
WITNESS the hand and seal of the undersigned Assignor this 6th day of
December, A.D., 1969.
/s/ (Mrs.) Alice B. Rix
-------------------------(SEAL)
Assignor
-2-
<PAGE> 18
ACCEPTANCE OF ASSIGNMENT
In consideration of the above assignment and the written consent of Lessor
thereto, the undersigned hereby agrees to make rental payments as set forth in
said lease and, in so agreeing, shall be personally liable therefor, and shall
perform and keep all promises, covenants, conditions and agreements of the said
lease by Lessee to be made, kept and performed and it is agreed by and between
Lessor and this Assignee, the undersigned hereto, that the said lease is hereby
incorporated by reference thereto in this Acceptance and all of the terms
thereof shall be read and understood herein in the same manner as they are
expressed in said lease.
WITNESS the hand and seal of the undersigned Assignee this 19th day of
December, A.D., 1969.
MIDWEST BANK AND TRUST COMPANY,
an Illinois corporation,
By: /s/ Robert L. Woods (SEAL)
-------------------------------
President
ATTEST:
/s/ William T. Grace
- -------------------------------
Sec'y
<PAGE> 19
CONSENT TO ASSIGNMENT
The undersigned Lessor hereby consents to the assignment of the within
lease by Assignee of Lessee therein described in consideration of the
promises, covenants and agreements therein expressed and in consideration
likewise of the covenants, promises and agreements of this Assignee above set
forth.
WITNESS the hand and seal of Lessor this 16 of Jan A.D.,
---------- --------
1970.
WESTERN NATIONAL BANK OF CICERO As
Trustee under Trust No. 3062, and
not personally,
By: /s/ John F. Cilik
-------------------------------
Vice President
ATTEST:
/s/ Charles Mallen
- ---------------------------------------
Trust Officer
STATE OF ILLINOIS )
) SS
COUNTY OF C O O K )
I, Lillian R. Vitous , a Notary Public in and for said County, in the
-----------------------
State aforesaid, DO HEREBY CERTIFY that JOHN F. CILIK, Vice President of
--------------------------------------
the WESTERN NATIONAL BANK OF CICERO, a national banking association, and
CHARLES MALLEN , Trust Officer , of said national banking
- -------------------- --------------------
association, personally known to me to be the same persons whose names are
subscribed to the foregoing instrument as such Vice President and
----------------------
Trust Officer, respectively, appeared before me this day in person and
- -------------
acknowledged that they signed and delivered the said instrument as their own
free and voluntary acts, and as the free and voluntary act of said national
banking association, as Trustee, for the uses and purposes therein set forth;
and the said Trust Officer did also then and there acknowledge that
---------------------
he, as custodian of the corporation seal of said national banking association,
did affix the said corporate seal of said national banking association to said
instrument as his own free and voluntary act, and as the free and
--------
voluntary act of said national banking association, as Trustee, for the uses
and purposes therein set forth.
<PAGE> 20
GIVEN under my hand and Notarial Seal this 16th day of January
, A.D., 1970. ----------- ------------
/s/ Lillian R. Vitous
-------------------------------
Notary Public
2
<PAGE> 1
EXHIBIT 10.6
BRITANNICA CENTRE LEASE
MIDWEST BANK & TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
Page
<TABLE>
<S> <C> <C>
1. Rent......................................................... 2
2. Additional Rent.............................................. 2
3. Services..................................................... 4
4. Landlord's Title............................................. 6
5. Certain Rights Reserved to Landlord.......................... 6
6. [Intentionally Deleted]...................................... 6
7. Waiver of Claims............................................. 6
8. Holding Over................................................. 7
9. Assignment and Subletting.................................... 7
10. Condition of Premises........................................ 8
11. Alterations.................................................. 8
12. Use of Premises.............................................. 10
13. Repairs...................................................... 14
14. Untenantability.............................................. 15
15. Eminent Domain............................................... 16
16. Landlord's Remedies.......................................... 16
17. Insurance.................................................... 19
18. Subordination of Lease....................................... 20
19. Sale of Premises by Landlord................................. 22
20. Estoppel Certificate......................................... 22
21. Notices...................................................... 22
22. Miscellaneous................................................ 23
23. Substitution of Premises..................................... 25
24. Limitation on Landlord's Liability........................... 25
25. Brokers...................................................... 25
26. Security Deposit............................................. 26
27. Mortgagee Protection......................................... 26
28. Construction................................................. 26
29. Termination Option........................................... 26
30. Additional Condition......................................... 27
31. Maintenance by Landlord...................................... 27
32. Landlord Default............................................. 27
33. Tenant Improvement Financing................................. 27
Exhibit A - Floor Plan
Exhibit B - Workletter
Exhibit C - Termination Fee Schedule
Exhibit D - Rules and Regulations
Exhibit E - Financing Documents
</TABLE>
i
<PAGE> 3
BRITANNICA CENTRE LEASE
THIS LEASE is made in Chicago, Illinois, dated as of May 1, 1994.
Chicago Title and Trust Company, as Trustee under Trust Agreement dated
November 2, 1977, and known as Trust No. 1070932 ("Landlord"), hereby leases
unto Midwest Bank & Trust Company, an Illinois corporation ("Tenant"), and
Tenant accepts, that certain space (the "Premises") consisting of approximately
9,170 square feet, comprised of 5,292 square feet on the ground floor and 3,878
square feet on the lower level, as shown on the floor plan attached as Exhibit
A to this Lease and made a part hereof, of the building (the "Building")
situated on real estate commonly known as 310 South Michigan Avenue (the
"Land"), Chicago, Illinois for a term of fifteen (15) years (the "Term")
commencing on the Commencement Date (as hereinafter defined), and ending on the
Expiration Date (as hereinafter defined), unless sooner terminated as provided
herein, to be occupied and used by Tenant for banking and related activities
including, without limitation, financial planning, counseling and investment
services, insurance and trust business, and general office and administrative
purposes, and for no other purpose.
As used herein, the Commencement Date shall mean May 1, 1994,
notwithstanding the fact that Landlord and Tenant may actually execute this
Lease at a later date. Landlord and Tenant acknowledge that this Lease shall
not be executed until such time as (i) Landlord and Tenant shall have approved
the final Plans for the construction of the Tenant Work (as such terms are
defined in the Workletter attached hereto as Exhibit B), and (ii) Landlord's
lender shall have approved this Lease and delivered, or agreed to deliver, a
non-disturbance agreement reasonably acceptable to Tenant. If the foregoing
matters do not occur, despite the parties' reasonable, good faith efforts to
cause them to occur, this Lease shall not be executed and shall be of no force
or effect whatsoever. Upon the full execution of this Lease and the occurrence
of the Commencement Date, Tenant's existing lease of space in the Building (the
"Existing Lease") shall be terminated and neither party shall have any
liability to the other under the Existing Lease, except for those liabilities
accruing prior to such termination date. As used herein, the Expiration Date
shall mean the date immediately prior to the fifteenth (l5th) anniversary of
the Commencement Date. Upon the full execution of this Lease, Landlord and
Tenant shall make an adjustment of Tenant's rental obligations under the
Existing Lease and this Lease for the period beginning on May 1, 1994 and
ending on the date of such execution so that Tenant shall only be liable for
Rent due and payable under this Lease for such period and, to the extent that
Tenant has paid more for such period under the Existing Lease than would have
otherwise been due under this Lease, Landlord shall credit such excess against
Rent next coming due under this Lease.
<PAGE> 4
In Consideration Thereof, the Parties Covenant and Agree:
1. RENT. Tenant shall pay to Landlord at the Office in the Building of
Landlord or at such other place as Landlord may designate, annual base rent
("Base Rent"), in equal monthly installments, in accordance with the following
schedule:
<TABLE>
<S> <C> <C>
LEASE YEAR ANNUAL BASE RENT MONTHLY INSTALLMENTS
1 $158,004.00 $13,167.00
2 161,954.00 13,496.17
3 165,904.00 13,825.33
4 169,854.00 14,154.50
5 173,804.00 14,483.67
6 177,755.00 14,812.92
7 181,705.00 15,142.08
8 185,655.00 15,471.25
9 189,605.00 15,800.42
10 193,555.00 16,129.58
11 197,505.00 16,458.75
12 201,455.00 16,787.92
13 205,405.00 17,117.08
14 209,355.00 17,446.25
15 213,305.00 17,775.42
</TABLE>
As used herein, "Lease Year" shall mean the twelve (12) month period commencing
on the Commencement Date and each successive twelve (12) month period
thereafter commencing on each anniversary of the Commencement Date.
Base Rent shall be paid without any abatement, set-off or deduction
whatsoever (except as may be expressly provided in this Lease), in advance on
the first day of each and every calendar month during the Term and at the
current rate for fractions of a month if the Term shall be terminated on any
day other than the last day of any month. It is the intention of the parties
that, to the fullest extent permitted by law, Tenant's covenant to pay Rent
shall be independent of all other covenants contained in this Lease. Unpaid
rent shall bear interest at the lesser of (i) the then current prime rate of
interest established by The First National Bank of Chicago, or its successor,
or (ii) the maximum rate permitted by law, from the expiration of any
applicable cure period until paid. Interest charges for unpaid rent shall be
considered Additional Rent.
2. ADDITIONAL RENT. In addition to paying the Base Rent specified in
Section 1 hereof, Tenant shall pay as "Additional Rent" the amounts determined
under this Section 2. The Base Rent, the Additional Rent and all other amounts
payable by Tenant hereunder, are sometimes herein collectively referred to as
the "Rent." All amounts due under this Section as Additional Rent shall be
payable for the same periods and in the same manner, time and place as the
Base Rent. Any amounts payable by Tenant hereunder in connection with the
construction
2
<PAGE> 5
of improvements or alterations to the Premises shall be deemed Additional Rent.
Without limitation on other obligations of Tenant which shall survive the
expiration or earlier termination of the Term, the obligations of Tenant to pay
the Additional Rent provided for in this Section 2 shall survive the expiration
of the Term. For any partial Calendar Year (hereinafter defined), Tenant shall
be obligated to pay only a pro rata share of the Additional Rent, based on the
number of the days of the Term falling within such Calendar Year.
A. DEFINITIONS. As used in this Section 2, the terms:
(i) "Base Year" shall mean calendar year 1994;
(iI) "Calendar Year" shall mean each calendar year (i.e.
January 1 through December 31) in which any part of the Term falls,
through and including the year in which the Term expires;
(III) "Tenant's Proportionate Share" shall mean 1.7455%,
being the percentage calculated by dividing 525,350 (being the rentable
area of the Building) into the rentable area contained in the Premises.
(iv) "Taxes" shall mean all real estate taxes and
assessments, special or otherwise, levied or assessed upon or with
respect to the Land and the Building and ad valorem taxes for any
personal property used in connection therewith which are payable during
any Calendar Year during the Term. Should the State of Illinois, or any
other governmental authority having jurisdiction over the Land or the
Building, (a) impose a tax, assessment, charge or fee, or increase a then
existing tax, assessment, charge or fee, which Landlord shall be required
to pay, either by way of substitution for such real estate taxes and ad
valorem personal property taxes, or in addition to such real estate taxes
and ad valorem personal property taxes, or (b) impose an income or
franchise tax or a tax on rents in substitution for or as a supplement to
a tax levied against the Land or the Building or the personal property
used in connection with the Land or the Building, all such taxes,
assessments, fees or charges (hereinafter defined as "Replacement Taxes")
shall be deemed to constitute Taxes hereunder. "Taxes" shall also
include all fees and costs incurred by Landlord in seeking to obtain a
reduction of, or a limit on the increase in, any Taxes, regardless of
whether any reduction or limitation is obtained, but only if Landlord
seeks such reduction or limitation in good faith with a reasonable belief
of success. Any refund or reduction obtained by Landlord shall benefit
the tenants in occupancy at that time (regardless of the year for which
such refund or reduction was obtained) and Landlord shall credit against
Tax Adjustment Amounts (as defined below) next payable Tenant's
Proportionate Share of any refund or reduction of Taxes in the manner
described in Section 2.B. below. Except as hereinabove provided with
regard to Replacement Taxes, Taxes shall not include any inheritance,
estate, succession, transfer, gift, franchise, net income or capital
stock tax.
3
<PAGE> 6
B. TAX ADJUSTMENT. Beginning on May 1, 1996, Tenant shall pay to
Landlord as Rent, in addition to the Base Rent required by Section 1
hereof, an amount ("Tax Adjustment Amount") equal to Tenant's
Proportionate Share of the amount by which the total Taxes paid during
each Calendar Year exceeds the amount of the Taxes paid with respect to
the Base Year. The Tax Adjustment Amount with respect to each Calendar
Year shall be paid in monthly installments, in an amount reasonably
estimated from time to time by Landlord (based upon the most recent tax
bills and tax assessment information available) and communicated by
written notice to Tenant. Landlord shall cause to be kept books and
records showing Taxes in accordance with an appropriate system of accounts
and accounting practices consistently maintained. As promptly as
practicable following the issuance of the second installment tax bill in
each Calendar Year, Landlord shall cause its accountants to review such
books and records (and to do such other work as may be necessary to enable
such accountants to give the statement hereinafter required) and to
deliver to Landlord their statement specifying the amount of Taxes for
such Calendar Year for the Building. After receipt of such statement,
Landlord shall cause the amount of the Tax Adjustment Amount for such
calendar year to be computed based on Taxes due and payable in such
Calendar Year for the Building as specified in such accountant's statement
and Landlord shall deliver to Tenant a statement of such amount, together
with copies of the applicable tax bills, and Tenant shall pay any
deficiency to Landlord as shown by such statement within thirty (30) days
after receipt of such statement. If the total of the estimated monthly
installments paid by Tenant during any Calendar Year exceeds the actual
Tax Adjustment Amount due from Tenant for such Calendar Year, at
Landlord's option, such excess shall be either credited against payments
next due hereunder or refunded by Landlord within thirty (30) days,
provided Tenant is not then in Default hereunder. The amount of any
refund of Taxes received by Landlord shall be credited against Taxes for
the year in which such refund is received. In determining the amount of
Taxes for any year, the amount of special assessments to be included shall
be limited to the amount of the installment (plus any interest payable
thereon) of such special assessment required to be paid during such year
if the Landlord had elected to have such special assessment paid over the
maximum period of time permitted by law. All references to Taxes "for" a
particular year shall be deemed to refer to Taxes paid during such year
without regard to when such Taxes are assessed or levied.
3. SERVICES. Landlord shall provide:
A. HEAT AND AIR CONDITIONING daily from 8 a.m. to 5 p.m., Saturdays, 8
a.m. to 1 p.m., Sundays and holidays excepted, whenever heat or air
conditioning shall, in Landlord's reasonable judgement, be required for
the comfortable occupation and use of the Premises. After hours heating
and air conditioning shall be provided to Tenant at the prevailing hourly
rates charged by Landlord in the Building, upon 48 hours prior notice.
B. WATER from the City of Chicago mains for drinking, lavatory and
toilet purposes, drawn through fixtures installed by Landlord or by Tenant
with Landlord's written consent. Tenant shall pay, at rates fixed by
Landlord, for water used for special
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use air conditioning (such as a separate water cooled air conditioning
unit), or any other special purpose other than drinking, lavatory and
toilet purposes.
C. ELECTRICITY. Landlord shall install a meter for the measurement of
consumption of electricity to the Premises. Tenant shall pay all charges
for electricity consumed on the Premises. At no time shall Tenant be
charged for electrical usage at rates in excess of the charges for such
service authorized by the I.C.C.
D. JANITORIAL SERVICE in and about the Building, but not to the
Premises, Saturdays, Sundays and holidays excepted. Tenant shall provide
its own janitorial service for the Premises. Such janitorial service
shall be subject to Landlord's reasonable supervision but at Tenant's sole
responsibility. Tenant shall not provide any janitorial service in the
Premises except through a janitorial contractor or employees who are, and
shall continuously be, in each and every instance reasonably satisfactory
to Landlord.
Landlord does not warrant that any of the services above mentioned will
be free from interruptions caused by war, insurrection, civil commotion,
riots, acts of God, or the enemy or Government action, repairs, renewals,
improvements, alterations, strikes, lockouts, picketing, whether legal or
illegal, accidents, inability of Landlord to obtain fuel or supplies, or
any other cause or causes beyond the reasonable control of Landlord. Any
such interruption of service shall never be deemed an eviction or
disturbance of Tenant's use and possession of the Premises or any part
thereof, or render Landlord liable to Tenant for damages, or relieve
Tenant from performance of Tenant's obligations under this Lease.
Notwithstanding the foregoing, in the event that Landlord fails to furnish
any service required under this Section 3, and such failure was caused by
Landlord or was within Landlord's reasonable control, and such failure
materially interferes with Tenant's business operation for more than five
(5) business days after Landlord receives notice of such condition, then
all Rent, including Tax Adjustment Amount, shall abate from the first
(1st) day of such failure until service is restored; provided that, if
such service is restored within such five (5) day period, there shall be
no abatement. If such condition exists continually without restoration of
the service for one hundred eighty (180) days, Tenant shall have the right
to terminate this Lease upon written notice to Landlord.
4. LANDLORD'S TITLE. Landlord's Title is and always shall be paramount
to the title of Tenant, and nothing herein contained shall empower Tenant to
do any act which can, shall or may encumber the title of Landlord.
5. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves the
following rights: (A) upon sixty (60) days prior written notice to Tenant, to
change the name or street address of the Building without notice or liability
of Landlord to Tenant; (B) to install and maintain a sign or signs on the
exterior of the Building provided such signs do not interfere with Tenant's
signage which has been approved by Landlord; (C) to have access for Landlord
and the other tenants of the Building to any mail chutes located on the
Premises according to the rules of the United States Postal Service and subject
to Tenant's reasonable security requirements; (D) to
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<PAGE> 8
reasonably approve all sources furnishing sign painting and lettering used on
the Premises; (E) during the last ninety (90) days of the Term or any part
thereof, if during or prior to that time Tenant vacates the Premises (for more
than thirty (30) days, subject to matters outside Tenant's reasonable control),
to decorate, remodel, repair, alter or otherwise prepare the Premises for
reoccupancy; (F) to grant to anyone the exclusive right to conduct any
particular business or undertaking in the Building, provided that, so long as
Tenant is not in Default under this Lease, Landlord shall not lease space to a
"retail banking operation" anywhere in the Building; provided further, however,
that for the purpose of this clause (F), "retail banking operation" shall refer
to the business of actual banking activities, i.e., deposits, withdrawals,
account transfers, lending and other similar activities which the public
carries on with Bank tellers at the Premises, and such term shall not include
the other services described on page 1 of this Lease, such as financial
planning, counseling and investment services and insurance and trust business;
(G) to take any and all measures, including inspections, repairs, alterations,
additions and improvements to the Premises or to the Building, as may be
necessary or desirable for the safety, protection or preservation of the
Premises or the Building or Landlord's interests, or as may be necessary or
desirable in the operation of the Building.
Landlord may enter upon the Premises during regular business hours with
reasonable advance notice and may exercise any or all of the foregoing rights
hereby reserved without being deemed guilty of an eviction or disturbance of
Tenant's use or possession and without being liable in any manner to Tenant.
Notwithstanding the foregoing, in exercising its rights reserved under this
Section 5, Landlord shall not unreasonably interfere with Tenant's business
operation.
6. [Intentionally Deleted]
7. WAIVER OF CLAIMS. To the extent permitted by law, Tenant releases
Landlord, Landlord's beneficiaries, and their agents and employees from, and
waives, all claims for damage to person or property sustained by Tenant or any
occupant of the Building or Premises resulting from the Building or Premises or
any part of either or any equipment or appurtenance becoming out of repair, or
resulting from any accident in or about the Building, or resulting directly or
indirectly from any act or neglect of any tenant or occupant of the Building or
of any other person, including Landlord's agents and employees, but excluding
claims for personal injury caused by negligent acts of Landlord, Landlord's
beneficiaries, or their agents, or employees. This Section 7 shall apply
especially, but not exclusively, to the flooding of basements or other
subsurface areas, and to damage caused by refrigerators, sprinkling devices,
air conditioning apparatus, water, snow, frost, steam, excessive heat or cold,
falling plaster, broken glass, sewage, gas, odors or noise, or the bursting or
leaking of pipes or plumbing fixtures, and shall apply equally whether any such
damage results from the act or neglect of Landlord or of other tenants,
occupants or servants in the Building or of any other person, and whether such
damage be caused or result from any thing or circumstance above mentioned or
referred to, or any other thing or circumstance whether of a like nature or of
a wholly different nature. If any such damage, whether to the Premises or to
the Building or any part thereof, or whether to Landlord or to other tenants in
the Building, results from any act or neglect of Tenant, Landlord may, at
Landlord's option, repair such damage and Tenant shall, upon demand by
Landlord, reimburse Landlord
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forthwith for the total cost of such repairs but only if, and to the extent
that, such cost is not covered (or would not be covered) by insurance Landlord
is required to carry pursuant to the terms of this Lease. Tenant shall not be
liable for any damages caused by its act or neglect if Landlord or a tenant has
recovered the full amount of the damages from insurance and the insurance
company has waived in writing its right of subrogation against Tenant. All
property belonging to Tenant or any occupant of the Premises that is in the
Building or the Premises shall be there at the risk of Tenant or such other
person only, and Landlord shall not be liable for damage thereto or theft or
misappropriation thereof.
To the extent permitted by law, Landlord releases Tenant and its agents
and employees from, and waives, all claims for damage to person or property
sustained by Landlord resulting directly or indirectly from any act or neglect
of any tenant or occupant of the Building or of any other person, including
Tenant and its agents and employees, but excluding claims for personal injury
caused by negligent acts of Tenant or its agents or employees.
8. HOLDING OVER. If Tenant retains possession of the Premises or any
part thereof after the termination of the Term by lapse of time or otherwise,
Tenant shall pay Landlord rent at double the then current rate of Rent
(including Additional Rent) specified in Sections 1 and 2, for the time Tenant
thus remains in possession, and in addition thereto and if permitted under law,
Tenant shall pay Landlord all damages sustained by reason of Tenant's retention
of possession. If Tenant remains in possession of the Premises, or any part
thereof, after the termination of the Term by lapse of time or otherwise, such
holding over shall, constitute a tenancy at will. The provisions of this
Section do not waive Landlord's rights of reentry or any other right hereunder.
9. ASSIGNMENT AND SUBLETTING. Unless Tenant shall have first procured
Landlord's written consent, which shall not be unreasonably withheld or
delayed, Tenant shall not (A) assign or convey this Lease or any interest under
it; (B) allow any transfer hereof or any lien upon Tenant's interest by
operation of law; (C) sublet the Premises or any part thereof; or (D) permit
the use or occupancy of the Premises or any part thereof by anyone other than
Tenant. The consent by Landlord to any transfer, assignment or subletting
shall not constitute a waiver of the necessity of Landlord's consent to any
subsequent attempted transfer, assignment or subletting. Tenant shall pay to
Landlord as additional Rent, immediately upon receipt thereof, after deducting
therefrom Tenant's reasonable costs and expenses incurred in connection with
such subletting or assignment, a sum equal to fifty percent (50%) of any rent
or other consideration paid to Tenant by any subtenant or assignee in excess of
the sum of Base Rent plus Additional Rent then payable to Landlord pursuant to
the provisions of this Lease, plus any other profit or gain realized by Tenant
from such subleasing or assignment. Tenant shall pay Landlord's reasonable
costs and expenses, including attorney's fees, incurred in connection with the
processing of any request for Landlord's consent to an assignment or
subletting.
Notwithstanding anything to the contrary in this Section 9, the original
named Tenant hereunder may, so long as said original named Tenant remains
primarily liable hereunder, assign this Lease or sublet the Premises or any
portion thereof, upon prior notice to Landlord, but
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without Landlord's consent, to any of the following: (i) any person,
corporation or other entity which controls or is controlled by or under common
control with Tenant; (ii) any corporation resulting from a merger or
consolidation with Tenant; or (iii) any person, corporation or other entity
which acquires all or substantially all of the assets or stock of Tenant as a
going concern of the business that is being conducted on the Premises; provided
that, in each case, the assignee assumes in full the obligations of Tenant
under this Lease. Any such entity to which the Lease is assigned or which so
sublets is herein sometimes referred to as a "Tenant Affiliate".
10. CONDITION OF PREMISES. Tenant's taking possession shall be conclusive
evidence as against Tenant that the Premises were in good order and
satisfactory condition when Tenant took possession, subject to punch-list items
to be completed in accordance with the Workletter. No promise of Landlord to
alter, remodel or improve the Premises or the Building and no representation
respecting the condition of the Premises or the Building have been made by
Landlord to Tenant, unless the same is contained in this Lease or the
Workletter, or made a part hereof. This Lease does not grant any rights to
light or air over property, except over public streets kept open by public
authority. At the termination of this Lease by lapse of time or otherwise,
Tenant shall return the Premises in as good condition as when Tenant took
possession, ordinary wear and loss by fire excepted, failing which Landlord may
restore the Premises to such condition and Tenant shall pay the cost thereof.
Tenant may remove any floor covering laid by Tenant, provided (A) Tenant also
removes all nails, tacks, paper, glue, bases and other vestiges of the floor
covering, and restores the floor surface to the condition existing before such
floor covering was laid, or (B) Tenant pays to Landlord, upon request, the cost
of restoring the floor surface to such condition. If Tenant does not remove
Tenant's floor coverings, from the Premises prior to the end of the term,
Tenant shall be conclusively presumed to have abandoned the same and title
thereto shall thereby pass to Landlord without payment or credit by Landlord to
Tenant.
11. ALTERATIONS. This Section 11 does not apply to the Tenant Work to
be performed pursuant to the Workletter attached hereto. Tenant shall not make
any alterations in, or additions to, the Premises without Landlord's advance
written consent in each and every instance, which consent shall not be
unreasonably withheld or delayed. Landlord's decision to refuse such consent
shall be conclusive. In the event Landlord consents to such alterations or
additions, and such work affects the structure or integrity of the Building or
any Building Systems, circuitry or wiring, Landlord reserves the right to cause
the work to be performed by Landlord's designated general contractor and
subcontractors. Notwithstanding the foregoing, subcontracts in excess of $5,000
shall be competitively bid among at least three (3) subcontractors (where
available) and Tenant may select a subcontractor which is not the lowest
bidder. Landlord and Tenant shall agree upon an approved list of
subcontractors prior to bidding. If Landlord does not exercise the right to use
its designated general contractor, all contractors and subcontractors selected
by Tenant shall be subject to Landlord's reasonable approval. Before
commencement of the work, Tenant shall furnish Landlord, for its prior written
approval, with architectural plans and specifications certified by a licensed
architect or engineer reasonably acceptable to Landlord. If Landlord permits
Tenant to hire its own contractors for the performance of the work, then prior
to the commencement of the work or delivery of any materials onto the Premises
or into the Building, Tenant shall furnish Landlord with the names and
addresses of contractors, copies of contracts,
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necessary permits and indemnification in form and amount satisfactory to
Landlord and, upon completion of the work, waivers of lien against any and all
claims, costs, damages, liabilities and expenses which may arise in connection
with the alterations or additions. All additions and alterations shall be
installed in a good, workmanlike manner and only materials consistent with the
quality of the materials used in the initial build-out of the Premises shall be
used. Whether Tenant furnishes Landlord the foregoing or not, Tenant hereby
agrees to defend and hold Landlord harmless from any and all liabilities of
every kind and description which may arise out of or be connected in any way
with said alterations or additions. Before commencing any work in connection
with alterations or additions, Tenant shall furnish Landlord with certificates
of insurance from the general contractor and all subcontractors performing
labor or furnishing materials, insuring Landlord, Landlord's beneficiary and
Metropolitan Properties of Chicago, Inc. against any and all liabilities which
may arise out of or be connected in any way with said additions or alterations.
Tenant shall pay the cost of all such alterations and additions and also the
cost of decorating the Premises occasioned by such alterations and additions.
Upon completing any alterations or additions, Tenant shall furnish Landlord
with contractors' affidavits and full and final waivers of lien covering all
labor and materials expended and used. All alterations and additions shall
comply with all insurance requirements and with all ordinances and regulations
of the City of Chicago or any department or agency thereof and with the
requirements of all statutes and regulations of the State of Illinois and the
United States or of any department or agency thereof. If Landlord permits
Tenant to hire its own contractors for the work, then, at Landlord's request,
Tenant shall permit Landlord or its designated agent or contractor to supervise
construction operations in connection with alterations or additions and, if the
work being performed affects the structure or integrity of the Building or any
Building systems, circuitry or wiring, Tenant shall pay the reasonable costs
incurred in connection with such supervision, based upon reasonable hourly
rates, not to exceed 10% of the cost of such work in any event. All additions,
hardware, non-trade fixtures and all improvements, temporary or permanent, in
or upon the Premises, whether placed there by Tenant or by Landlord, shall,
unless Landlord requests their ultimate removal at the time of, and in
connection with, granting its consent to the installation thereof, become
Landlord's property and shall remain upon the Premises at the termination of
this lease by lapse of time or otherwise without compensation or allowance or
credit to Tenant. If Tenant does not remove said additions, hardware,
non-trade fixtures and improvements which were required by Landlord to be
removed, Landlord may remove the same and Tenant shall pay the cost of such
removal to Landlord upon demand. Tenant shall remove Tenant's furniture,
machinery, safe or safes, trade fixtures and other items of personal property
of every kind and description from the Premises prior to the end of the Term,
however ended. If not so removed, Landlord may request (in writing) their
removal, and if Tenant does not remove them, Landlord may do so and Tenant
shall pay the costs of such removal to Landlord upon demand. If Landlord does
not request their removal, all such items shall be conclusively presumed to
have been conveyed by Tenant to Landlord under this Lease as a bill of sale
without further payment or credit by Landlord to Tenant. For the purposes of
this Lease, all amounts owing to the Landlord for any work shall be considered
Additional Rent, and subject to the same terms and conditions.
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<PAGE> 12
Notwithstanding the foregoing, work which (i) will be performed wholly
within the Premises, (ii) will not affect the structure of the Building or the
heating, air-conditioning, ventilating, electrical, mechanical or plumbing
systems or circuitry, and (iii) will cost less than $7,500.00 in any one
instance, may be performed by Tenant upon prior written notice to Landlord
(specifying the nature of the work involved), but without Landlord's consent;
provided, however, that Tenant shall furnish Landlord with the names of all
contractors performing such work and Tenant shall cause all such contractors to
procure the insurance otherwise required under this Paragraph 11. In addition,
minor cosmetic work, such as picture hanging and minor furniture additions or
relocations shall not be subject to any of the requirements of this Section.
12. USE OF PREMISES.
A. Tenant shall occupy and use the Premises during the Term for the
purpose above specified and for no other purposes. Tenant and its
employees shall observe the Building rules and regulations. Landlord
shall not discriminate against Tenant in the enforcement of any rules or
regulations.
B. Tenant shall not exhibit, sell or offer for sale, on the Premises
or in the Building, any article or thing except those articles and things
essentially connected with the stated use of the Premises (including Bank
promotional items) without the advance written consent of Landlord, which
shall not be unreasonably withheld or delayed.
C. Tenant will not make or permit to be made any use of the Premises
which is forbidden by public law, ordinance of governmental regulation or
which may be dangerous to life, limb or property, or which may invalidate
or increase the premium cost of any policy of insurance carried on the
Building or covering its operations.
D. Tenant shall not display, inscribe, print, paint, maintain or affix
on any place in or about the Building (and outside of the Premises) any
sign, notice, legend, direction, figure or advertisement, except as
designated by Landlord and on the directory boards, and then only such
name or name and matter, and in such color, size, style, place and
material, as shall first have been approved by Landlord in writing, which
approval shall not be unreasonably withheld or delayed. Landlord's
acceptance of any name for listing on the Building Directory will not be
deemed, nor will it substitute for, Landlord's consent, as required by
this Lease, to any sublease, assignment, or other occupancy of the
Premises. The terms of this Paragraph shall not affect matters approved
by Landlord in the Plans for the Tenant Work. With respect to Tenant's
signage inside the Premises and not subject to Paragraph E below, Tenant
shall have the right to install or display signage consistent with that
installed or displayed in first class banking operations in office
buildings in the downtown Chicago area.
E. Tenant shall not advertise the business, profession or activities
of Tenant conducted in the Building in any manner which violates the
letter or spirit of any code of ethics adopted by any recognized
association or organization pertaining to such
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business, profession or activities, and shall not use the name of the
Building for any purpose other than that of the business address of
Tenant in connection with advertising its business operation at this
location, and shall never use any picture or likeness of the Building in
any circulars, notices, advertisements or correspondence without
Landlord's express consent in writing (which consent may be withheld in
Landlord's sole and absolute discretion). Tenant shall never affix any
signage to the windows of the Premises. Tenant may display interior
window signage which has been approved in writing by Landlord (which
approval shall not be unreasonably withheld or delayed), so long as such
signage is hung or maintained a reasonable distance back from the window.
Any Tenant signage to be displayed or affixed to the exterior of, or
outside of, the Building, shall be subject to Landlord's approval, which
shall not be unreasonably withheld or delayed. The terms of this
Paragraph shall not affect matters approved by Landlord in the Plans for
the Tenant Work.
At Landlord's sole cost, Landlord shall remove Tenant's existing
exterior signage on the Jackson Boulevard and Michigan Avenue sides of
the Building. Any new exterior signage desired by Tenant shall be
subject to Landlord's approval, which shall not be unreasonably withheld
or delayed, and Landlord may condition its approval on such signage being
of a quality consistent with first floor banking operations in other
downtown office buildings. Any such exterior signage shall be
manufactured and installed at Tenant's sole cost and Tenant shall also be
obligated, at its sole cost, to remove such signage upon the termination
of this Lease and to restore any affected Building area to its condition
prior to the installation of such signage.
F. Tenant shall not obstruct, or use for storage, or any purpose other
than ingress and egress, the sidewalks, entrances, passages, courts,
corridors, vestibules, halls, elevators and stairways of the Building.
G. No bicycle or other vehicle and no dog or other animal or bird shall
be brought or permitted to be in the Building or any part thereof. This
Paragraph shall not apply to wheelchairs or guide dogs.
H. Tenant shall not make or permit any noise or odor that is
objectionable to other occupants of the Building to emanate from the
Premises, and shall not create or maintain a nuisance therein, and shall
not disturb, solicit or canvass any occupant of the Building, and shall
not do any act tending to injure the reputation of the Building.
I. Tenant shall not install any piano, phonograph, or other musical
instrument, or radio or television set in the Building, or any antennae,
aerial wires or other equipment inside or outside the Building, without,
in each and every instance, prior approval in writing by Landlord, which
shall not be unreasonably withheld or delayed. The use thereof, if
permitted, shall be subject to control by Landlord to the end that others
shall not be disturbed or annoyed.
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J. Tenant shall not place or permit to be placed any article of any
kind on the window ledges except for those matters approved in writing by
Landlord and placed and maintained in a first-class and professional
manner and replaced promptly when they are no longer in such condition,
and shall not throw or permit to be thrown or dropped any article from
any window of the Building.
K. Tenant shall not undertake to regulate any thermostat other than a
self-operable thermostat in the Premises, and shall not waste water by
tying, wedging or otherwise fastening open any faucet.
L. Except as shown on the approved Tenant's Plans, no additional locks
or similar devices shall be attached to any door or window. No keys for
any door other than those provided by Landlord shall be made. If more
than two keys for one lock are desired by Tenant, Landlord may provide
the same upon payment by Tenant. Upon termination of this Lease or of
Tenant's possession, Tenant shall surrender all keys of the Premises and
shall make known to Landlord the explanation of all combination locks on
safes, cabinets and vaults remaining on the Premises.
M. Tenant shall be responsible for the locking of doors and the
closing of transoms and windows in and to the Premises.
N. If Tenant desires telegraphic, telephonic, burglar alarm or signal
service, Landlord will, upon request, direct where and how connections
and all wiring for such services shall be introduced and run. Without
such directions, no boring, cutting or installation of wires or cables is
permitted.
O. If Tenant desires, and if Landlord permits (which permission shall
not be unreasonably withheld or delayed), blinds, shades, awnings, or
other form of inside or outside window covering, or window ventilators or
similar devices, they shall be furnished, installed and maintained at the
expense of Tenant and must be of such shape, color, material and make as
approved by Landlord.
P. All persons entering or leaving the Building between the hours of 7
p.m. and 7 a.m., Monday through Friday, or at any time on Saturdays,
Sundays or holidays, may be required to identify themselves to a watchman
by registration or otherwise and to establish their rights to enter or
leave the Building. Landlord may exclude or expel any peddler, solicitor
or beggar at any time.
Q. Tenant shall not overload any floor. Landlord may direct the
routing and location of safes and other heavy articles. Safes, furniture
and all large articles shall be brought through the Building and into the
Premises at such times and in such manner as Landlord shall direct and at
Tenant's sole risk and responsibility. Tenant shall list all furniture,
equipment and similar articles to be removed from the Building, and the
list
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must be approved at the Office of the Building or by a designated person
before Building employees will permit any article to be removed.
R. Unless Landlord gives advance written consent in each and every
instance, Tenant shall not install or operate any steam or internal
combustion engine, boiler, machinery, refrigerating or heating device or
air conditioning apparatus in or about the Premises, or carry on any
mechanical business therein, or use the Premises for housing
accommodations or lodging or sleeping purposes, or do any cooking
therein, or use any illumination other than electric light, or use or
permit to be brought into the Building any inflammable oils or fluids
such as gasoline, kerosene, naphtha and benzine, or any explosives or
other articles deemed extra hazardous to life, limb or property.
Notwithstanding the foregoing, Tenant shall be permitted to have a
refrigerator and microwave oven in a separate employee area in the
Premises.
S. Tenant shall not place or allow anything to be against or near the
glass of partitions or doors of the Premises which may materially
diminish the light in, or be unsightly from, halls or corridors.
T. Tenant shall not install in the Premises any equipment which uses a
substantial amount of electricity without the advance written consent of
Landlord which shall not be unreasonably withheld or delayed. Tenant
shall ascertain from Landlord the maximum amount of electrical current
which can safely be used in the Premises, taking into account the
capacity of the electric wiring in the Building and the Premises and the
needs of other tenants in the Building and shall not use more than such
safe capacity. Landlord's consent to the installation of electric
equipment shall not relieve Tenant from the obligation not to use more
electricity than the capacity which has been consented to by Landlord.
U. Except as may be shown on the approved Tenant's Plans or as
otherwise approved by Landlord, Tenant shall not lay linoleum or other
similar floor covering so that such floor covering shall come in direct
contact with the floor of the Premises, and if linoleum or other similar
floor covering is used, an interliner of builder's deadening felt shall
first be affixed to the floor by paste or other material soluble in
water. The use of cement or other similar material is prohibited.
V. In addition to all other liabilities for breach of any covenant of
this Section 12, Tenant shall pay to Landlord all damages caused by such
breach and shall also pay to Landlord an amount equal to any increase in
insurance premium or premiums caused by such breach. The violation of
any covenant of this Section 12 may be restrained by injunction.
W. Tenant shall comply, and shall cause its employees, agents,
clients, customers, guests and invitees to comply, with the rules and
regulations attached hereto as Exhibit D, and such reasonable revised or
additional rules and regulations adopted by
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Landlord during the Term (the "Rules and Regulations"). All such Rules
and Regulations shall be applied generally to all tenants of the
Building. Notwithstanding anything to the contrary contained in the
Rules and Regulations, to the extent of any express or implied conflict
or inconsistency between the terms, provisions and intent of this Lease
and the terms, provisions and intent of the Rules and Regulations, the
terms, provisions and intent of this Lease shall govern and control.
13. REPAIRS. Subject to the provisions of Section 11, Tenant shall, at
Tenant's own expense, keep the Premises in good order, condition and repair
during the Term, including the replacement of all broken glass with glass of
the same size and quality, with signs thereon, under the supervision and with
the approval of Landlord. If Tenant does not make repairs promptly and
adequately, Landlord may, but need not, (after giving Tenant written notice of
its intention to perform repairs and a reasonable opportunity for Tenant to do
so first), make repairs and Tenant shall pay promptly the cost thereof. At any
time or times, Landlord, either voluntarily or pursuant to governmental
requirement, may, at Landlord's own expense, make repairs, alterations or
improvements in or to the Building or any part thereof, including the Premises,
and, during operations, may close entrances, doors, corridors, elevators or
other facilities, all without any liability to Tenant by reason of
interference, inconvenience or annoyance. Notwithstanding the foregoing, in
undertaking any work permitted or required under this Lease, Landlord shall
make all reasonable efforts to minimize interference with Tenant's business
operation. If, despite such efforts, there is material interference with
Tenant's business such that the Premises are rendered untenantable for their
intended use, Landlord shall perform such work during non-business hours or, at
Landlord's election, Tenant shall be entitled to an abatement of Rent for the
period during which such material interference and untenantability exist.
Landlord shall not be liable to Tenant for any expense, injury, loss or damage
resulting from work done in or upon, or the use of, any adjacent or nearby
building, land, street or alley unless caused by Landlord's intentional act.
Tenant shall pay Landlord for overtime and for any other expense incurred in
the event repairs, alterations, decorating or other work in the Premises are
not made during ordinary business hours at Tenant's request. Expenses incurred
by the Tenant under this section of the Lease shall be considered Additional
Rent, subject to all the same terms and conditions as the Base Rent.
14. UNTENANTABILITY. Tenant shall give prompt notice to Landlord in case
of any fire or other damage to the Premises. If (A) the Premises shall be
damaged to the extent of thirty (30%) percent or more of the cost of
replacement thereof during the last two (2) years of the Term or (B) the
Building shall be damaged to the extent of fifty (50%) percent or more of the
cost of replacement thereof whether or not the Premises shall be damaged, or
(C) Landlord advises Tenant that Landlord does not have sufficient funds to
repair and restore the Building or the Premises (and Landlord shall be
obligated to advise Tenant as to such matter within sixty (60) days of the
casualty) then in any of such events, Landlord and Tenant shall each have the
right and option to cancel this Lease by written notice to the other within
ninety (90) days after the date of such occurrence, and thereupon this Lease
shall cease and terminate with the same force and effect as though such date
were the date fixed for the expiration of the Term. Notwithstanding the
foregoing, Landlord shall not have the right to terminate due to insufficient
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funds available for repair and restoration, if such lack of funds is due to
Landlord's failure to maintain the insurance required of Landlord hereunder.
If this Lease is terminated, Tenant shall vacate and surrender the Premises to
Landlord. Tenant's liability for the rents and other charges reserved
hereunder shall cease as of the date of such damage or destruction and Landlord
shall make an equitable refund of any rents or other charges paid by Tenant in
advance and not earned or accrued. Tenant covenants and agrees to pay to
Landlord the insurance proceeds payable to Tenant with respect to leasehold
improvements under the fire insurance policies mentioned under Section
17(B)(i), which obligation shall survive the expiration of the Term, to be used
to repair and restore such leasehold improvements. Unless this Lease is
terminated as aforesaid, this Lease shall remain in full force and effect and
the parties waive the provisions of any law to the contrary, and Landlord and
Tenant agree that the Premises shall be repaired and restored with due
diligence to substantially the condition thereof immediately prior to such
damage or destruction. In no event shall Landlord be required to replace or
restore additions, improvements or alterations to the Premises made by or at
the expense of Tenant unless Landlord shall have received the proceeds of the
insurance policies mentioned under Section 17(B)(i), and in such event,
Landlord's obligation shall be limited to the amount of such proceeds actually
received by Landlord. Landlord shall have no obligation to replace or restore
office furniture or equipment, trade fixtures, merchandise, samples, supplies
or any other items of Tenant's property in the Premises and Tenant shall not be
obligated to give Landlord any of its insurance proceeds with respect to
Tenant's property. If by reason of such fire or other casualty the Premises is
rendered wholly untenantable, the Rent shall be abated, or if only partially
damaged, the Rent shall be abated proportionately as to that portion of the
Premises rendered untenantable; in either event until sixty (60) days after
notice by Landlord to Tenant that the Premises have been substantially repaired
and restored or until Tenant's operations are restored in the entire Premises,
whichever shall occur sooner. If the Premises have not been substantially
repaired and restored within two hundred seventy (270) days of the casualty,
Tenant shall have the right to terminate this Lease by giving Landlord written
notice thereof within ten (10) business days after the expiration of such 270
day period, time being of the essence.
15. EMINENT DOMAIN. If the Building, or any portion thereof which
includes a substantial part of the Premises, or which prevents the operation of
the Building, shall be taken or condemned by any competent authority for any
public use or purpose, the term of this Lease shall end upon, and not before,
the date when the possession of the part so taken shall be required for such
use or purpose, and without apportionment of the condemnation award. Current
rent shall be apportioned as of the date of such termination. If any
condemnation proceeding shall be instituted in which it is sought to take or
damage any part of the Building, or the land under it, or if the grade of any
street or alley adjacent to the Building is changed by any competent authority
and such change of grade makes it necessary or desirable to remodel the
Building to conform to the changed grade, Landlord shall have the right to
cancel this Lease upon not less than ninety (90) days' notice prior to the date
of cancellation designated in the notice. No money or other consideration
shall be payable by Landlord to Tenant for the right of cancellation. Tenant
shall be entitled to seek its allocable share of any condemnation award as
permitted under law at the time.
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16. LANDLORD'S REMEDIES. All rights and remedies of Landlord herein
enumerated shall be cumulative, and none shall exclude any other right or
remedy allowed by law.
A. If a petition in a bankruptcy or insolvency or for reorganization
or for the appointment of a receiver or trustee of all or a portion of
the property of Tenant shall be filed against Tenant in any court,
pursuant to any statute either of the United States or of any state, and
if, within sixty (60) days thereafter, Tenant fails to secure a discharge
thereof, or if Tenant shall voluntarily file any such petition or make an
assignment for the benefit of creditors or petition for or enter into an
arrangement, or if this Lease is taken under writ of execution (each of
the foregoing, herein called an "Act of Bankruptcy"), then Tenant shall
be deemed in breach and default of this Lease and Landlord, in its
discretion and at its election may, to the extent permitted by law, elect
to cancel and terminate this Lease. Upon the cancellation and
termination of this Lease pursuant to the provisions of this subsection
16(A), Landlord, in addition to all the remedies provided by law, shall
be entitled to the remedies provided in this Section 16. lf this Lease
is assumed or assigned by a trustee pursuant to the provisions of the
Bankruptcy Reform Act of 1978 ("Bankruptcy Act") (11 U.S.C. Section 101
et seq.), then the trustee shall cure any default under this Lease and
shall provide such adequate assurances of future performance of this
Lease as are required by the Bankruptcy Act (including, but not limited
to, the requirement of Section 365(b)(1)). If the trustee does not cure
such defaults and provide such adequate assurances under the Bankruptcy
Act within the applicable time periods provided by the Bankruptcy Act,
then this Lease shall be deemed rejected and Landlord shall have the
right to immediate possession of the Premises and shall be entitled to
all remedies provided by the Bankruptcy Act for damages for breach and/or
termination of this Lease.
B. If any of the following occur (each, a "Default"):
(i) Tenant defaults in the payment of Rent as the same shall
become due and fails to cure such default within five (5) days
after written notice thereof from Landlord;
(ii) Tenant defaults in the prompt and full performance of any
other provision of this Lease, and Tenant does not cure the default
within thirty (30) days (or immediately if the default involves a
hazardous condition) after written demand by Landlord that the
default be cured (unless the default involves a hazardous
condition, which shall be cured immediately upon Landlord's
demand); provided, however, that if such default (excluding
defaults relating to a hazardous condition) cannot reasonably be
cured within such thirty (30) day period, then it shall not be a
Default as long as Tenant has commenced to cure such matter within
such thirty (30) day period and continues to diligently pursue such
cure to completion; provided, however, that such additional period
to cure shall not in any event exceed sixty (60) days following the
expiration of the aforesaid thirty (30) day period;
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<PAGE> 19
(iii) if the leasehold interest of Tenant be levied upon under
execution or be attached by process of laws;
(iv) if Tenant suffers or commits an Act of Bankruptcy; or
(v) if Tenant abandons the Premises for more than fifteen (15)
consecutive days,
then and in any such event, Landlord may, if Landlord so elects but not
otherwise, and with or without notice of such election and with or
without any demand whatsoever, either forthwith terminate this Lease and
Tenant's right to possession of the Premises or, without terminating this
Lease, forthwith terminate Tenant's right to possession of the Premises.
Upon any such termination of this Lease, Landlord shall immediately be
entitled to recover damages in an amount equal to the then present value
of the Rent specified in Sections 1 and 2 of this Lease (computed and
discounted on the basis of a rate per annum equal to the "corporate base
rate" announced at the time by The First National Bank of Chicago for the
residue of the stated term hereof.
C. After the occurrence of a Default, upon any termination of this
Lease, whether by lapse of time or otherwise, or upon any termination of
Tenant's right to possession without termination of the Lease, Tenant
shall surrender possession and vacate the Premises immediately, and
deliver possession thereof to Landlord. Tenant hereby grants to Landlord
full and free license to enter into and upon the Premises in the event of
such termination, with process of law, and to take possession of the
Premises. Landlord may expel or remove Tenant and any others who may be
occupying the Premises. Landlord may remove any and all property from
the Premises, using such force as may be necessary, without being deemed
in any manner guilty of trespass, eviction or forcible entry or detainer.
The exercise by Landlord of any of the remedies reserved under this
Section 16(C) shall not constitute a waiver or election by Landlord with
respect to Landlord's rights to rent or any other right given to Landlord
elsewhere in this Lease or by operation of law.
D. After the occurrence of a Default, if Landlord elects to terminate
Tenant's right to possession only, without terminating the Lease, the
Landlord may, at Landlord's option, enter into the Premises, remove
Tenant's signs and other evidences of tenancy, and take and hold
possession thereof as in Paragraph (C) of this Section 16, provided,
without such entry and possession terminating the Lease or releasing
Tenant, in whole or in part, from Tenant's obligation to pay the rent
hereunder for the full Term, and in any such case Tenant shall pay
forthwith to Landlord, if Landlord so elects, a sum equal to the present
value (calculated in the same manner described in the last sentence of
Paragraph B above) of the entire amount of the Rent specified in Sections
1 and 2 of this Lease for the residue of the stated Term plus any other
sums then due hereunder. Upon and after entry into possession without
termination of the Lease, Landlord may, but need not, relet the Premises
or any part thereof for the account of Tenant to any person, firm
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or corporation other than Tenant for such rent, for such time and upon
such terms as Landlord in Landlord's reasonable discretion shall
determine, and Landlord shall not be required to accept any tenant
offered by Tenant or to observe any instructions given by Tenant about
such reletting. In any case, Landlord may make repairs, alterations and
additions in or to the Premises, and redecorate the same to the extent
deemed by Landlord necessary or desirable, and Tenant shall, upon demand,
pay the cost thereof, together with Landlord's reasonable expenses of
the reletting. If the consideration collected by Landlord upon any such
reletting for Tenant's account is not sufficient to pay monthly the full
amount of the rent reserved in this Lease, together with the costs of
repairs, alterations, additions, redecorating and Landlord's expenses,
Tenant shall pay to Landlord the amount of each monthly deficiency upon
demand; and if the consideration so collected from any such reletting is
more than sufficient to pay the full amount of the rent reserved herein,
together with the costs and expenses of Landlord, Landlord, at the end of
the stated Term of the Lease (or at such earlier time as Landlord has
been fully reimbursed and compensated for Tenant's Default), shall
account for the surplus to Tenant. Landlord shall use reasonable efforts
to mitigate its damages in the event of a Default.
E. Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of this Lease or of law, to which
Tenant is or may be entitled, may be handled, removed or stored by
Landlord at the risk, cost and expense of Tenant, and Landlord shall in
no event be responsible for the value, preservation or safekeeping
thereof. Tenant shall pay to Landlord, upon demand, any and all
reasonable expenses incurred in such removal and all reasonable storage
charges against such property so long as the same shall be in Landlord's
possession or under Landlord's control. Any such property of Tenant not
removed from the Premises or retaken from storage by Tenant within thirty
(30) days after the end of the Term, however terminated, shall be
presumed to have been conveyed by Tenant to Landlord under this Lease as
a bill of sale without further payment or credit by Landlord to Tenant.
F. Tenant shall pay upon demand all of Landlord's costs, charges and
expenses, which shall be considered Additional Rent under this Lease,
including the fees of counsel, agents and others retained by Landlord,
incurred in enforcing Tenant's obligations hereunder or incurred by
Landlord in any litigation, negotiation or transaction in which Tenant
causes Landlord, without Landlord's fault, to become involved or
concerned. Landlord shall pay upon demand all of Tenant's costs, charges
and expenses, including the fees of counsel, agents and others retained
by Landlord, incurred in enforcing Landlord's obligations hereunder or
incurred by Tenant in any litigation, negotiation or transaction in which
Landlord causes Tenant without Tenant's fault, to become involved or
concerned.
17. INSURANCE.
A. Landlord and Tenant hereby waive any rights each may have against
the other on account of any loss or damage occasioned to Landlord or
Tenant, as the case
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may be, their respective property, the Premises, or its contents or to
other portions of the Building, arising from any risk covered by fire and
extended coverage insurance policies then in effect. The parties each,
on behalf of their respective insurance companies insuring the property
of either Landlord or Tenant against any such loss, waive any right of
subrogation that such companies may have against Landlord or Tenant, as
the case may be. Landlord and Tenant covenant with each other that, to
the extent such insurance endorsement is available, they will each
obtain for the benefit of the other a waiver of any right of subrogation
from their respective insurance companies.
B. Tenant further covenants and agrees that from and after the date of
delivery of the Premises from Landlord to Tenant, Tenant will carry and
maintain, at its sole cost and expense, the following types of insurance,
in the amounts specified and in the form hereinafter provided for:
(i) Insurance covering all additions, improvements and
alterations to the Premises made by or at the expense of the Tenant and
all office furniture and equipment, trade fixtures, merchandise and other
items of Tenant's property in the Premises, against all perils as covered
by an "All Risk" form in an amount equal to 100% of the full replacement
value of such property.
(ii) Comprehensive general liability insurance against claims for
bodily injury, death and property damage occurring in or about the
Premises, including contractual liability coverage, to afford protection
to the limits of not less than $5,000,000.00 combined single limit with
respect to bodily injury or death to any number of persons and property
damage from any one accident or occurrence, and naming Landlord,
Landlord's beneficiary, Metropolitan Properties of Chicago, Inc. and
Landlord's mortgagee (if any) as additional insureds.
(iii) Plate glass insurance.
All such insurance shall be effected under valid and enforceable policies
issued by insurers or recognized responsibility which are licensed to do
business in the State of Illinois. Tenant shall, prior to the commencement of
the Term of this Lease, furnish to Landlord, certificates evidencing such
coverage, and showing the interests of Landlord and Landlord's mortgagee, if
any, which certificates shall state that such insurance may not be changed or
cancelled without thirty (30) days prior written notice to Tenant and Landlord
(and, if required, Landlord's mortgagee) and thereafter certificates of renewal
shall be delivered to Landlord not less than thirty (30) days prior to the
expiration of the original policies or the preceding renewals.
C. Landlord shall maintain in full force and effect during the Term
(i) fire and extended coverage covering the Building in an amount equal to
the full replacement cost thereof, and (ii) comprehensive general public
liability insurance, including contractual liability coverage, with
coverage limits not less than those carried by prudent landlords
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of similar properties. Upon Tenant's request, Landlord shall furnish to
Tenant a certificate evidencing coverage.
18. SUBORDINATION OF LEASE.
A. Landlord may have heretofore encumbered or may hereafter encumber
with a mortgage or trust deed the Building, or any interest therein, and
may have heretofore sold and leased back or may hereafter sell and lease
back the land on which the Building is located, and may have heretofore
encumbered or may hereafter encumber the leasehold estate under such
lease with a mortgage or trust deed. (Any such mortgage or trust deed is
herein called a "Mortgage" and the holder of any such mortgage or the
beneficiary under any such trust deed is herein called a "Mortgagee".
Any such lease of the underlying land is herein called a "Ground Lease",
and the lessor under any such lease is herein called a "Ground Lease".
Any Mortgage which is a first lien against the Building, the land on
which the Building is located, the leasehold estate of the lessor under a
Ground Lease (if the property is not then subject to an unsubordinated
mortgage) is herein called a "First Mortgage" and the holder or
beneficiary of or Ground Lessor under any First Mortgage is herein called
a "First Mortgagee.") This Lease is, or shall be, subject and
subordinate to any First Mortgage encumbering the Building as of the
Commencement Date. This provision shall be self-operative, and no
further instrument of subordination and shall be required to effectuate
such subordination. Notwithstanding the foregoing, and as a condition to
Tenant's obligations under this Lease, Landlord shall obtain from its
lender a non-disturbance agreement, in commercially reasonable form
(which shall mean that such agreement does not materially change the
terms of this Lease or Tenant's rights or obligations hereunder),
providing that notwithstanding the Foreclosure of a First Mortgage, so
long as Tenant shall not be in Default, Tenant's right of possession
shall not be disturbed or affected by such foreclosure.
B. If requested by a First Mortgagee, Tenant will either (i)
subordinate its interest in this Lease to said First Mortgage, and to any
and all advances made thereunder and to the interest thereon, and to all
renewals, replacements, supplements, amendments, modifications and
extensions thereof, or (ii) make certain of Tenant's right and interest
in this Lease superior thereto; and Tenant will promptly execute and
deliver such agreement or agreements as may be reasonably required by
such Mortgagee or Ground Lessor; provided, however, Tenant covenants that
it will not subordinate this Lease to any Mortgage or Ground Lease other
than a First Mortgage (including a Ground lease defined as a First
Mortgage hereunder) without the prior written consent of the First
Mortgagee.
C. It is further agreed that (a) if any Mortgage shall be foreclosed,
or if any Ground Lease be terminated, (i) the liability of the Mortgagee
or purchaser at such foreclosure sale or the liability of a subsequent
owner designated as Landlord under this Lease shall exist only so long as
such Mortgagee, purchaser or owner is the owner of the Building or the
land on which the Building is located, and such liability shall not
continue or survive after further transfer of ownership; and (ii) upon
request of the Mortgagee, if
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the Mortgage shall be foreclosed, Tenant will attorn, as Tenant under
this Lease, to the purchaser at any foreclosure sale under any Mortgage
or upon request of the Ground Lessor,if any Ground Lease shall be
terminated, Tenant will attorn as Tenant under this Lease to the Ground
Lessor, and Tenant will execute such instruments as may be necessary or
appropriate to evidence such attornment, subject to Tenant's receipt of
the non-disturbance agreement described in the last sentence of Section
18.A. above; (b) this Lease may not be modified or amended so as to
reduce the Rent or shorten the Term provided hereunder, or so as to
adversely affect in any other respect to any material extent the rights
of the Landlord or its successor, nor shall this Lease be canceled or
surrendered, without the prior written consent, in each instance, of the
First Mortgagee; and (c) Tenant waives the provisions of any statute or
rules of law, now or hereafter in effect, that may give or purport to
give Tenant any right to terminate or otherwise adversely affect
Landlord's interest in this Lease or reduce or limit the obligations of
Tenant hereunder in the event of the prosecution or completion of any
such foreclosure proceeding. No Mortgagee or any purchaser at a
foreclosure sale shall be liable for any act or omission of the Landlord
which occurred prior to such sale or conveyance, nor shall Tenant be
entitled to any offset against or deduction from Rent due after such date
by reason of any act or omission of the Landlord prior to such date.
Further, Tenant agrees that no Mortgagee shall be bound by the prepayment
of Rent made in excess of ninety (90) days before the date on which such
payment is due.
19. SALE OF PREMISES BY LANDLORD. Any sale or exchange by Landlord of
its interest in the Premises shall be subject to this Lease and the rights and
obligations of Landlord and Tenant hereunder; and Tenant shall attorn to
Landlord's grantee or transferee provided that such grantee or transferee has
assumed in writing the obligations of Landlord hereunder. Upon any such sale
or exchange and the assignment by Landlord of this Lease, Landlord shall be and
is hereby entirely freed and relieved of all liability under any and all of its
covenants and obligations contained in or derived from this Lease arising out
of any act, occurrence or omission relating to the Premises or this Lease
occurring after the consummation of such sale or exchange and assignment.
20. ESTOPPEL CERTIFICATE. Each party shall from time to time, upon not
less than ten (10) days prior written request by the other, deliver to the
other party a statement in writing certifying:
A. that this Lease is unmodified and in full force and effect or, if
there have been modifications, that the Lease as modified is in full
force and effect, and the Term of the Lease has commenced;
B. the dates of commencement of the Term and expiration of the Term
and the date to which Rent and other charges have been paid; and
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C. that Landlord has completed all work to be performed and the
requesting party is not in default under any provision of this Lease or,
if in default, a detailed description thereof.
If such other party shall fail to execute and deliver such statement within
said ten (10) days, then such failing party hereby authorizes the requesting
party as its agent and attorney-in-fact to execute such statement for and on
the behalf of the failing party. Tenant hereby agrees that the estoppel
certificate to be provided by Landlord may be executed and furnished by
Landlord's management agent provided that Landlord agrees to be bound by such
certificate.
21. NOTICES. All notices, demands, approvals, consents, requests for
approval or consent or other writings in this Lease provided to be given, made
or sent by either party hereto to the other ("Notice") shall be in writing and
shall be deemed to have been fully given, made or sent when made by personal
service, one (1) business day after deposit with an overnight courier, or two
(2) business days after deposit in the United States mail, certified or
registered and postage prepaid and properly addressed as follows:
To Landlord: To Metropolitan Properties of Chicago, Inc.,
310 South Michigan Avenue, Chicago, Illinois
60604-4210, Attention: Property Manager with a
copy to Rudnick & Wolfe, 203 North LaSalle
Street, Chicago, Illinois 60610, Attention:
James L. Beard, Esq.
To Tenant: To 1606 North Harlem Avenue, Elmwood Park,
Illinois 60635, Attention: Brad Luecke.
The address to which any Notice shall be given, made or sent to either party
may be changed by written notice given by such party as above provided. Any
notice, demand, request or consent to be made by or required of Landlord, may
be made and given by Metropolitan Properties of Chicago, Inc. with the same
force and effect as if made and given by Landlord.
22. MISCELLANEOUS.
A. No receipt of money by Landlord from Tenant after the
termination of this Lease or after the service of any notice or after the
commencement of any suit, or after final judgment for possession of the
Premises shall renew, reinstate, continue or extend the Term of this
Lease or affect any such notice, demand or suit.
B. No waiver of any default of a party hereunder shall be implied from
any omission by the other party to take any action on account of such
default if such default persists or be repeated, and no express waiver
shall affect any default other than the default specified in the express
waiver and that only for the time and to the extent therein stated. The
invalidity or unenforceability of any provision hereof shall not affect
or impair any other provision.
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C. In the absence of fraud, no person, firm or corporation, or the
heirs, legal representatives, successors and assigns, respectively,
thereof, executing this Lease as agent, trustee or in any other
representative capacity shall ever be deemed or held individually liable
hereunder for any reason or cause whatsoever.
D. The words "Landlord" and "Tenant" wherever used in this Lease shall
be construed to mean Landlords or Tenants in all cases where there is
more than one lessor or lessee, and the necessary grammatical changes
required to make the provisions hereof apply either to corporation or
individuals, men or women, shall in all cases be assumed as though in
each case fully expressed.
E. Each provision hereof shall extend to and shall, as the case may
require, bind and inure to the benefit of Landlord and Tenant and their
respective heirs, legal representatives and successors, and assigns in
the event this Lease has been assigned with the express, written consent
of Landlord or as otherwise permitted under Section 9 of this Lease.
F. The headings of sections are for convenience only and do not limit
or construe the contents of the sections.
G. Submission of this instrument for examination does not constitute a
reservation of or option for the Premises. The instrument becomes
effective as a lease upon execution and delivery by both Landlord and
Tenant.
H. All non-scheduled amounts owed by the Tenant to Landlord hereunder,
or by Landlord to Tenant hereunder, shall be paid within thirty (30) days
from the date the party to whom amounts are owed renders statements of
account therefor and shall bear interest, from the thirty-first (31st)
day until paid, at the rate of the lesser of (i) the then current prime
rate of interest established by the First National Bank of Chicago, or
its successor, or (ii) the maximum rate permitted by law thereafter until
paid. This subparagraph H shall not apply to any amounts for which a
separate notice provision is provided elsewhere in this Lease, which
amounts shall be paid as so provided and which shall bear interest from
the first day overdue until paid.
I. Provisions typed on the face of this Lease and signed by Landlord
and Tenant and all exhibits attached to this Lease are hereby made a part
of this Lease as though inserted at length in this Lease.
J. If Tenant shall occupy the Premises prior to the beginning of the
stated Term of this Lease with Landlord's consent, all the provisions of
this Lease shall be in full force and effect as soon as Tenant occupies
the Premises. Rent for any period prior to the beginning of the stated
Term of this Lease shall be filed on the basis of the prorated portion of
the rent set forth in Section 1.
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K. This Lease is the entire understanding of the parties and the terms
and provisions of this Lease shall only be modified or amended in writing
which is consented to by Landlord's mortgagee, if any.
L. Neither Landlord nor Tenant shall be deemed in default with
respect to the failure to perform any of the terms, covenants and
conditions of this Lease on its part to be performed, if such failure is
due in whole or in part to any strike, lockout, labor dispute (whether
legal or illegal), civil disorder, inability to procure materials,
failure of power, restrictive governmental laws and regulations, riots,
insurrections, war, fuel shortages, accidents, casualties, Acts of God,
act caused directly or indirectly by the other party to this Lease (or
such other party's agents, employees, guests or invitees), acts of other
tenants or occupants of the Building (which are outside of the performing
party's reasonable control) or any other cause beyond the reasonable
control of the performing party. In such event, the time for performance
shall be extended by an amount of time equal to the period of the delay
so caused. Except as expressly provided in this Lease, no interruption
of service resulting from any of the causes described in the first
sentence of this Paragraph 22.L shall relieve Tenant of any of its
obligations under this Lease or render Landlord liable for damages.
Landlord shall not be liable to Tenant for any expense, injury, loss or
damage resulting from work done in or upon, or the use of, any adjacent
or nearby building, land, street, alley or underground vault or
passageway, except as otherwise expressly provided in this Lease. This
Paragraph shall not apply to Tenant's obligation to pay Rent under this
Lease, except as may be expressly set forth in this Lease.
23. SUBSTITUTIION OF PREMISES. [Intentionally Deleted]
24. LIMITATION OF LANDLORD'S LIABILITY. This instrument is executed by
Chicago Title and Trust Company, as Trustee under Trust Agreement dated
November 2, 1977, and known as Trust No. 1070932. No personal liability shall
be asserted or enforceable against Chicago Title and Trust Company, the
beneficiaries of said Trust No. 1070932, or their respective agents and
employees by reason of any of the covenants, statements, representations or
warranties contained in this Lease. Anything in this Lease to the contrary
notwithstanding, Tenant agrees that it shall look solely to the estate and
property of Landlord in the land and building of which the Premises forms a
part and (subject to prior rights of the holder of any mortgage or deed to
secure debt or a deed of trust on any part of the Building) for the collection
of any judgment (or other judicial process) requiring the payment of money by
Landlord in the event of any default or breach by Landlord with respect to any
of the terms, covenants and conditions of this Lease to be observed or
performed by Landlord, and no other assets of Landlord (which for the purposes
of this Section 24 shall be deemed to include the trustee and beneficiaries of
said Trust No. 1070932 and their respective agents and employees) shall be
subject to levy, execution or other procedures for the satisfaction of Tenant's
remedies.
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<PAGE> 27
25. BROKER. Landlord and Tenant each represent and warrant to the other
that neither such party nor its offices or agents nor anyone acting on such
party's behalf has dealt with any real estate brokers in connection with this
Lease, except that (i) the parties have dealt with Metropolitan Properties of
Chicago, Inc. whose commission or fee shall be paid by Landlord, and (ii)
Tenant has dealt with Price Associates, Inc., whose commission or fee shall be
paid by Tenant. Each party agrees to indemnify, defend and hold harmless the
other party, its beneficiaries (if any), and their agents and employees, from
the claim or claims of any broker or brokers claiming, as an agent of the
indemnifying party, to have interested Tenant in the Building or the Premises
or claiming, as an agent of the indemnifying party, to have caused Tenant to
enter into this Lease.
26. SECURITY DEPOSIT. [Intentionally Deleted]
27. MORTGAGEE PROTECTION. Tenant agrees to give any mortgagees and/or
trust deed holders, by registered mail, a copy of any notice of default served
upon the Landlord, provided that prior to such notice Tenant has been notified,
in writing (by way of Notice of Assignments of Rents and Leases, or otherwise),
of the address of such mortgagees and/or trust deed holders. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the mortgagees and/or trust deed holders shall
have an additional thirty (30) days within which to cure such default or if
such default cannot be cured within that time, then such additional time as may
be necessary if within thirty (30) days, any mortgagee and/or trust deed holder
has commenced and is diligently pursuing the remedies necessary to cure such
default (including but not limited to commencement of foreclosure proceedings,
if necessary to effect such cure) in which event this Lease shall not be
terminated while such remedies are being so diligently pursued.
28. CONSTRUCTION. Landlord agrees to perform tenant improvements in
accordance with the Workletter attached as Exhibit B to this Lease and made a
part hereof.
29. TERMINATION OPTION. Subject to the provision of this Section 29,
Tenant shall have the right to terminate this Lease, upon 365 days' prior
written notice. Such termination shall be effective as of a date specified in
such notice which shall not be earlier than the 365th day following Landlord's
receipt of such notice (such effective date, herein referred to as the
"Termination Date"); provided, however, that the earliest possible Termination
Date shall be on the day prior to the eighth (8th) anniversary of the
Commencement Date (i.e., April 30, 2002). Tenant's termination option
hereunder shall only be effective if, on or prior to the scheduled Termination
Date, Tenant pays to Landlord in cash or by certified or cashier's check (i)
the "Termination Fee" (as hereinafter defined) and (ii) the amount necessary to
cure all defaults by Tenant which may exist under this Lease prior to the
Termination Date. The Termination Fee shall be the applicable amount for the
month in which the Termination Date occurs as shown on the schedule attached as
Exhibit C to this Lease and incorporated herein by this reference, which amount
represents the then unamortized Landlord's cost of constructing tenant
improvements, including Landlord's Contribution (as defined in the Workletter),
Landlord's architectural and
25
<PAGE> 28
engineering costs, Landlord's leasing commission costs and other costs
incurred by Landlord in connection with this Lease.
If Tenant so elects to terminate this Lease, then, effective as of the
Termination Date, this Lease shall be deemed to have expired by lapse of time
and Tenant shall return the Premises to Landlord on the Termination Date in
accordance with the requirements of this Lease. All obligations of Tenant
which accrue under this Lease on or before the Termination Date shall survive
such termination and neither the exercise of such right to terminate nor such
termination shall affect Landlord's remedies on account of any default by
Tenant existing prior to the Termination Date.
30. ADDITIONAL CONDITION. At all times during the Term, Tenant shall
permit other tenants (and their employees, agents and invitees) of the Building
to use the entry at the northeast end of the Premises (ground floor) as a means
of ingress and egress to the Building.
31. MAINTENANCE BY LANDLORD. At all times, Landlord shall maintain the
structure, foundation, roof and exterior (excluding windows and metal
refinishing) of the Building, the heating, air conditioning, ventilating,
plumbing and electrical systems (excluding bulbs and ballasts), and equipment
servicing the Premises in accordance with general standards now or hereafter
applicable to first class office buildings in the downtown Chicago Area, in
conformance with all applicable laws, regulations and ordinances, and shall
make such repairs as are necessary to effect the foregoing.
32. LANDLORD DEFAULT. If Landlord defaults in the observance or
performance of any of the terms or covenants required to be performed by it
under this Lease which directly relate to the appearance or operation of the
Premises, Tenant, after not less than ten (10) business days prior written
notice to Landlord may, but shall not be obligated to, remedy such default and
in connection therewith may pay expenses and employ counsel, provided that in
the event of an emergency, if Landlord shall not forthwith commence to, and
diligently pursue, correction of such default after written notice from Tenant,
Tenant shall have the right to remedy such default without further notice; all
sums reasonably expended or obligations reasonably incurred by Tenant in
connection therewith shall be paid by Landlord to Tenant upon demand.
33. TENANT IMPROVEMENT FINANCING. The portion of the cost of
constructing the initial improvements to the Premises owed by Landlord is being
financed by Landlord. In furtherance of such financing, Landlord, Tenant and
the existing first mortgagee shall execute the financing documents attached as
Exhibit E to this Lease, namely, a Note, an Assignment of Rents and Estoppel, a
Mortgage Disclaimer and an Acknowledgment. It is understood by Tenant that
Tenant's efforts in procuring the improvement financing were, in part, the
consideration for Landlord's agreement to provide certain concessions in this
Lease and that the providing of such financing is an integral part of this
transaction and the ultimate lease agreement between the parties hereto.
Notwithstanding the foregoing, Tenant shall not be obligated to execute the
financing documents or provide such financing until Landlord has furnished
Tenant with evidence that Landlord has restructured its current financing to
include a loan term greater than the term
26
<PAGE> 29
of such tenant improvement financing. Upon the furnishing of such evidence,
Tenant and Landlord shall execute such financing documents and Tenant shall
cause the tenant improvement financing to be provided to Landlord. It is
understood, however, that the parties' obligations to execute such financing
documents are subject to Landlord's mortgagee's approval of such financing. If
such approval is not obtained, Landlord shall be obligated to make Landlord's
Contribution (as described in the Workletter) via alternate means without the
benefit of such financing.
27
<PAGE> 30
IN WITNESSES WHEREOF, the parties hereunder have caused this Lease to be
executed under their seals, on the date first above written.
LANDLORD: TENANT:
CHICAGO TITLE AND TRUST MIDWEST BANK & TRUST COMPANY,
COMPANY, as Trustee under Trust an Illinois corporation
Agreement dated November 2,
1977, and known as Trust No.
1070932 By: /s/ Brad A. Luecke
--------------------------
Its: President (Title)
--------------------------
By: /s/ Attest:
-------------------------------
Its: Asst. Vice President(Title) By: /s/ Joseph Parrillo
------------------------------- --------------------------
Its: Vice President & Cashier
-------------------------
Attached exoneration rider is incorporated herein.
It is expressly understood and agreed by and between the parties herein,
anything herein to the contrary notwithstanding, that each and all of the
warranties, indemnities, representations, covenants, undertakings and
agreements herein made on the part of the Trustee while in form purporting to
the warranties, indemnities, representations, covenants, undertakings and
agreements of said Trustee are nevertheless each and every one of them, made
and intended not as personal warranties, indemnities, representations,
covenants, undertakings and agreements by the Trustee or for the purpose or
with the intention of [ ] said Trustee personally but are made and
intended for the purpose of binding only that portion of the trust [ ]
described herein, and this instrument is executed and delivered by said Trustee
not in its own right, but solely [ ] the exercise of the powers
conferred upon it as such Trustee; and that no personal liability or personal
responsibility is assumed by nor shall at any time be asserted or enforceable
against the Chicago Title and Trust Company on account of this instrument or on
account of any warranty, indemnity, representation, covenant, undertaking or
agreement of the said Trustee in this instrument contained, either expressed or
implied, all such personal liability, if any, being expressly waived and
released.
28
<PAGE> 1
EXHIBIT 10.7
LEASE
FOR
927 CURTISS STREET
DOWNERS GROVE, ILLINOIS 60515
SECTION 1
TERMS
1.1 Terms.
Reference in this Lease to any of the following terms shall be construed
to mean the following:
<TABLE>
<S> <C> <C>
(a) LANDLORD GROVE LODGE No. 824 ANCIENT FREE AND ACCEPTED MASONS
(b) LANDLORD'S ADDRESS P. O. Box 36
Downers Grove, Illinois 60515.
(c) TENANT MIDWEST BANK OF HINSDALE
(d) TENANT'S ADDRESS 500 West Chestnut Street
Hinsdale, Illinois 60521.
(e) PREMISES The premises and improvements on Lot 2, commonly
known as 927 Curtiss Street, Downers Grove, Illinois
60515, together with fifteen (15) parking spaces to
be designated on Lot 3, all as shown on attached
Exhibit "A" made a part hereof.
(f) SCHEDULED TERM DATES April 1, 1996 to March 31, 2001.
(g) TERM Five (5) years. See Rider "A" for Renewal Options.
(h) MONTHLY BASE RENT $ 3,000.00 per month for the first lease year;
3,090.00 for the second lease year;
3,182.00 for the third lease year;
3,277.00 for the fourth lease year; and
3,375.00 for the fifth lease year.
(i) SHARE OF TAXES See Rider "A" attached hereto.
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
(j) UTILITIES Tenant to pay all the utilities used by the premises.
(k) PERMITTED USE Drive-Up Bank Facility.
(l) BROKER Baird & Warner.
(m) SECURITY DEPOSIT None.
(n) DATE OF LEASE March 20, 1996.
</TABLE>
1.2 Exhibits.
There are attached hereto and incorporated as a part of this Lease:
EXHIBIT A - Depiction of the Premises.
EXHIBIT B - Landlord's Rules and Regulations.
1.2A Rider.
There is attached hereto and incorporated as of part of this Lease a
Rider designated as Rider "A".
SECTION 2
PREMISES
2.1 The Premises.
(a) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises.
(b) The Premises exclude the other portions of real estate owned by the
Landlord and include easements serving exclusively, or in common, other parts
of the Premises, all as depicted on Exhibit "A".
(c) By taking possession of the Premises, Tenant accepts the Premises in
their then condition, which shall be the same condition as of the date of this
Lease.
(d) The parties hereto agree that this Lease is upon and subject to the
terms, covenants and conditions herein set forth and both parties covenant as a
material part of the consideration for this Lease to keep and perform each and
all of said terms, covenants and conditions by it to be kept and performed and
that this Lease is made upon the condition of such performance.
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<PAGE> 3
2.2 Right to Use Easements.
Tenant shall have the right to use in common, subject to the Landlord's
reasonable rules and regulations, the following areas ("Easement Areas")
appurtenant to the Premises:
The easements highlighted on Exhibit "A" attached hereto and made a part
hereof.
2.3 Landlord's Reservations.
Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use of the Premises, to:
(a) Install, use, maintain, repair, replace and relocate for service to
the Premises and Building, or any portion thereof, pipes, ducts, conduits,
wires and appurtenant fixtures, wherever located in the Premises or Building;
(b) Alter or relocate any easement, provided that substitutions are
substantially equivalent or better;
(c) Close temporarily any of the Easement Areas for maintenance and repair
purposes so long as reasonable access to the Premises remains available;
(d) Use the Easement Areas while engaged in maintaining or making
additional improvements, repairs or alterations to the Premises or any portion
thereof.
SECTION 3
TERM
3.1 Term.
(a) Tenant shall have and hold the Premises for the Term of this Lease
which shall be that period commencing that date on which Tenant commences
occupancy of the Premises for the Permitted Uses ("Commencement Date") and
ending on the expiration of such period (or, if such period would expire on a
day other than the last day of a calendar month, ending on the next succeeding
last day of a calendar month), unless the Term shall be sooner terminated as
hereinafter provided.
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<PAGE> 4
SECTION 4
RENT
4.1 Monthly Fixed Rent Payments.
(a) Tenant shall pay, without notice or demand and without any deductions
or offsets, monthly in advance of the first (1st) day of each month for each
full calendar month of the Term, and the corresponding fraction of said amounts
for any fraction of a calendar month at the beginning or end of the Term,
except as provided in the Rider hereto.
(b) In addition to said Annual Fixed Rent, Tenant agrees to pay all
utilities serving the premises.
SECTION 5
SECURITY DEPOSIT
5.1 Security Deposit.
Tenant will be required to maintain a deposit at all times during the
term of this lease of -0- to secure Tenant's obligations under this lease.
SECTION 6
CONDITION OF PREMISES
6.1 Condition of the Premises.
The taking of possession of the Premises by Tenant shall conclusively
establish that the Premises and Improvements were at such time in satisfactory
condition.
SECTION 7
ALTERATIONS
7.1 Future Alterations and Additions.
(a) Tenant may, at any time and from time to time during the Term of this
Lease, at its sole cost and expense, make alterations, additions,
installations, substitutes, improvements and decorations (hereinafter
collectively called "changes") in and to the Premises, excluding structural
changes, on the following conditions, provided such changes will not result in
a violation of any and all applicable Codes:
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<PAGE> 5
(i) No changes shall weaken or impair the structural strength or create
the potential for unusual expenses to be incurred upon the removal of
Tenant's Changes and the restoration of the Premises upon the termination
of this Lease.
(ii) The proper functioning of any of the mechanical, electrical,
sanitary and other service systems or installations ("Service
Facilities") shall not be adversely affected and there shall be no
construction which might interfere with Landlord's free access to the
Service Facilities or interfere with the moving of Landlord's equipment
to or from the enclosures containing the Service Facilities.
(iii) In performing the work involved in making such changes, Tenant
shall be bound by and observe all of the conditions and covenants
contained in this Section.
(iv) All work shall be done at such times and in such manner as Landlord
from time to time may reasonably designate.
(v) Tenant shall not be permitted to install and make part of the
Premises any materials, fixtures or articles which are subject to liens,
conditional sales, contracts or mortgages.
(b) Before proceeding with any change (exclusive of changes to items
constituting Tenant's personal property which will have no adverse effect on
the structural, electrical, plumbing or HVAC systems), Tenant shall submit to
Landlord plans and specifications for the work to be done, and shall obtain
Landlord's written approval which shall not be unreasonably withheld. Landlord
may at any time confer with professional consultants in connection with the
review of Tenant's plans and specifications and the preparation of such
drawings and may also submit to such consultant(s) any of the plans prepared by
Tenant. If Landlord or such consultant(s) shall disapprove of any of the
Tenant's plans, Landlord may withhold its approval and Tenant shall be advised
of the reasons for such disapproval.
(c) All changes and the performance thereof shall at all times comply with
(i) all laws, rules, orders, ordinances, directions, regulations and
requirements of all governmental authorities, agencies, offices, departments,
bureaus and boards having jurisdiction thereof, (ii) all rules, orders,
directions, regulations and requirements of the applicable fire rating bureau,
or any similar insurance body or bodies, and (iii) all rules and regulations of
Landlord, and Tenant shall cause changes to be performed in compliance
therewith and in good and first class workmanlike manner. The changes shall be
performed in such manner as not to interfere with the occupancy of any other
tenant of the Landlord nor delay, or impose any additional expense upon
Landlord in the maintenance or operation of the Premises, and shall be
performed by contractors or mechanics approved by Landlord and submitted to
Tenant pursuant to this Section, who shall coordinate their work in cooperation
with any other work being performed by the Landlord. Throughout the performance
of such changes, Tenant, at its expense, shall carry, or cause to be carried,
workmen's compensation insurance in statutory limits, and general liability
insurance for any occurrence in or about the Premises, of which Landlord and
its managing agent shall be named as parties insured, in such limits as
Landlord may reasonably prescribe, with insurers
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<PAGE> 6
reasonably satisfactory to Landlord. Tenant shall furnish Landlord with
reasonably satisfactory evidence that such insurance is in effect at or
before the commencement of change and, on request at reasonable intervals
thereafter during the continuance of changes.
(d) Tenant further covenants and agrees that any mechanic's lien filed
against the Premises for work claimed to have been done for, or materials
claimed to have been furnished to Tenant, will be discharged by Tenant, by bond
or otherwise, within ten (10) days after the filing thereof, at the cost and
expense of Tenant. If Tenant fails to so discharge any lien, Landlord shall
have the right, but not the obligation, to discharge such lien at Tenant's
expense which shall be paid as Additional Rent. All alterations, decorations,
additions or improvements upon the Premises, made by either party, including
(without limiting the generality of the foregoing) all wallcovering, built-in
cabinet work, paneling and the like, shall become the property of Landlord, and
shall remain upon and be surrendered with the Premises, as a part thereof, at
the end of the Term hereof.
(e) All articles of personal property and all business and trade fixtures,
machinery and equipment, furniture and movable partitions owned by Tenant or
installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant and may be removed by Tenant at any time during the Term
provided Tenant is not in default hereunder. If Tenant shall fail to remove
all of its effects from said Premises upon termination of this Lease for any
cause whatsoever, Landlord may, at its option, remove the same in any manner
that Landlord shall choose, and dispose of or store said effects without
liability to Tenant for any loss thereof, and Tenant agrees to pay Landlord
upon demand any and all expenses incurred in such disposal or removal,
including court costs and reasonable actual attorneys' fees and disposal and
storage fees for such effects for any length of time that the same shall be in
Landlord's possession, or Landlord may, at its option, without notice, sell or
dispose of said effects, or any of the same at private sale and without legal
process, for such price, if any, as Landlord may obtain and apply the proceeds
of such sale to any amounts due under this Lease from Tenant to Landlord and
upon the expenses incident to the removal, disposal or sale of said effects.
(f) Landlord reserves the right at any time and from time to time without
the same constituting an actual or constructive eviction and without incurring
any liability to Tenant therefor or otherwise affecting Tenant's obligations
under this Lease, to make such changes, alterations, additions, improvements,
repairs or replacements in or to the Lot or the Improvements (including the
Premises if required so to do by any law or regulation) as Landlord may deem
necessary or desirable. Nothing contained in this Section shall be deemed to
relieve Tenant of any duty, obligation or liability of Tenant with respect to
making any repair, replacement or improvement or complying with any law, order
or requirement of any government or other authority.
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<PAGE> 7
SECTION 8
REPAIRS
8.1 Repairs.
(a) By entry hereunder, Tenant accepts the Premises as being in good
order, condition and repair. Tenant shall, when and if needed or whenever
reasonably requested by Landlord to do so, maintain and make repairs to the
Premises and every part thereof, to keep, maintain and preserve the Premises in
first class condition, excepting ordinary wear and tear. Tenant shall upon the
expiration or sooner termination of the Term hereof surrender the Premises to
Landlord in the same condition received, ordinary wear and tear excepted.
Landlord shall have no obligation to alter, remodel, improve, repair, decorate
or paint the Premises or any part thereof and the parties hereto affirm that
Landlord has made no representations to Tenant respecting the condition of the
Premises except as specifically herein set forth.
(b) Anything contained in the Subsection above to the contrary
notwithstanding, Landlord shall repair and maintain the structural portions of
the Building, including the roof, exterior walls, foundation, exterior light
bulbs and globes, exterior landscaping and heating, ventilating,
air-conditioning systems installed or furnished by Landlord, unless such
maintenance and repairs are caused in part or in whole by the act, neglect,
fault of or the omission of any duty by Tenant, its agents, servants, employees
or invitees, in which case Tenant shall pay to Landlord, as additional rent,
the reasonable cost of such maintenance and repairs. Tenant shall maintain and
repair at its sole cost and expense, all Premises facilities, installed by
Tenant or on behalf of Tenant or existing in the Premises at the time of the
delivery of possession of the Premises to Tenant by Landlord. The provisions
of the preceding sentence of this Subsection shall not apply to the HVAC
systems provided by Landlord to Tenant, which maintenance and repair shall be
the responsibility of the Landlord.
SECTION 9
TAXES ON TENANT'S PROPERTY
9.1 Taxes on Tenant's Property.
Tenant shall be liable for and shall pay at least ten (10) days before
delinquency, any taxes levied against any personal property or trade fixtures
placed by Tenant in or about the Premises.
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<PAGE> 8
SECTION 10
DELAY IN SERVICE AND REPAIR
10.1 Interruptions and Delays in Service and Repairs.
(a) Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of or
interference with business arising from the Landlord or its agents entering the
Premises for any of the purposes authorized in this Lease, or for repairing the
Premises or any portion of the Building however the necessity may occur. In
case Landlord is prevented or delayed from making any repairs, alterations or
improvements, or furnishing any services or performing any other covenant or
duty to be performed on Landlord's part, by reason of any cause reasonably
beyond Landlord's control, Landlord shall not be liable to Tenant therefor, nor
shall Tenant be entitled to any abatement or reduction of rent by reason
thereof, nor shall the same give rise to a claim in Tenant's favor that such
failure constitutes actual or constructive, total or partial, eviction from the
Premises unless such delay shall last fourteen (14) business days or more.
(b) Landlord reserves the right to stop any service or utility system,
when necessary by reason of accident or emergency, or until necessary repairs
have been completed; provided, however, that in each instance of stoppage
Landlord shall exercise reasonable diligence to eliminate the cause thereof.
Except in case of emergency repairs Landlord will give Tenant reasonable
advance notice of any contemplated stoppage and will use reasonable efforts to
avoid unnecessary inconvenience to Tenant by reason thereof.
SECTION 11
LANDLORD'S COVENANTS
Landlord covenants during the Term:
11.1 Services Furnished by Landlord.
To not interrupt the existing utilities serving the premises. In the
event that Landlord is prevented or delayed from providing any utility service,
Landlord shall not be liable to Tenant therefore, nor except as expressly
otherwise provided hereafter shall Tenant be entitled to any abatement or
reduction of rent by reason thereof, nor shall the same give rise to a claim in
Tenant's favor that such failure constitutes actual or constructive, total or
partial, eviction from the Premises, unless such delay lasts fourteen (14)
business days or more.
11.2 Roof, Exterior Wall, Floor Slab, and Easement Area Repairs.
Except as otherwise provided hereafter, to make such repairs to the roof,
exterior walls, floor slabs, and easement areas as may be necessary to keep
them in serviceable condition.
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<PAGE> 9
11.3 Obligation to Insure.
Landlord covenants and agrees that throughout the Term it will insure the
Premises (excluding any property with respect to which Tenant is obligated to
insure pursuant to the provisions of this Lease) against damage by fire and
extended coverage perils and public liability insurance in such reasonable
amounts with such reasonable deductibles as would be carried by a prudent owner
of a similar building in the geographic area in which the Building is situated.
Notwithstanding any contribution by Tenant to the cost of insurance premiums,
with respect to the Premises or any alterations of the Premises as provided
herein, Tenant acknowledges that it has no right to receive any proceeds from
any such insurance policies carried by Landlord, although Landlord shall use
such proceeds in the repair and reconstruction of the Premises and the
Improvements unless the provisions of this Lease shall apply. Landlord will
not carry insurance of any kind on Tenant's furniture or furnishings, or on any
fixtures, equipment, improvements or appurtenances of Tenant under this Lease,
and Landlord shall not be obligated to repair any damage thereto or replace the
same. Tenant shall reimburse Landlord for the cost of insurance as additional
rent hereunder, payable within ten (10) business days of Landlord presenting a
copy of a paid receipt for said insurance.
SECTION 12
TENANT'S COVENANTS
Tenant covenants during the Term and such further time as Tenant occupies
any part of the Premises:
12.1 Payments.
To pay when due, without deductions or offsets, all base Rent, all
additional Rent as provided herein and all charges for utility services
rendered to the Premises.
12.2 Repair and Surrender.
Except as provided otherwise in this Lease, to keep the Premises in good
order, repair and condition, reasonable wear and tear only excepted, and all
glass in windows (except glass in exterior walls of the Building unless the
damage thereto is attributable to Tenant's negligence or misuse) and doors of
the Premises whole and in good condition with glass of the same quality as that
injured or broken, damage by fire only excepted, and at the expiration or
termination of the Term peaceably to yield up the Premises and all alterations
and additions thereto in good order, repair and condition, reasonable wear and
tear excepted, first removing all goods and effects of Tenant and, to the
extent specified by Landlord by notice to Tenant given at least sixty (60) days
before such expiration or termination, all alterations and additions made by
Tenant and all partitions, and repairing any damage caused by such removal and
restoring the Premises and leaving them clean and neat.
-9-
<PAGE> 10
12.3 Use.
To use and occupy continuously the Premises for the Permitted Use and
purposes incident thereto and not to use or permit the Premises to be used for
any other purpose without the prior written consent of Landlord. Tenant shall
not use or occupy the Premises in violation of any recorded covenants,
conditions and restrictions affecting the Lot or of any law or of the
Certificate of Occupancy issued for the Building of which the Premises is a
part, and shall, upon five (5) days written notice from Landlord, discontinue
any use of the Premises which is declared by any governmental authority having
jurisdiction to be a violation of any recorded covenants, conditions and
restrictions affecting the Lot or of any law or of said Certificate of
Occupancy. Tenant shall comply with any directive of any governmental
authority having jurisdiction which shall, by reason of the nature of Tenant's
use or occupancy of the Premises, impose any duty upon Tenant or Landlord with
respect to the Premises or with respect to the use or occupation thereof.
Tenant shall upon demand immediately reimburse Landlord as additional rent for
any costs incurred by Landlord as a result of Tenant's failure to comply with
the provisions of this Section. Tenant shall not do or permit to be done
anything in or about the Premises which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Landlord or injure or
annoy them, or use or allow to be used the Premises for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises. Tenant shall not commit or suffer to
be committed any waste in or upon the Premises and shall keep the Premises in
first class repair and appearance.
12.4 Obstructions and Items Visible from Exterior.
Not to obstruct in any manner any portion of the Premises or any portion
thereof or of the Lots used by Tenant in common with others; not without prior
written consent of Landlord to permit the painting or placing of any signs,
curtains, blinds, shades, awnings, aerials or flagpoles, or the like, visible
from the Premises. Provided however, that Tenant may install signs as
permitted by Code on the existing pylons, all at Tenant's expense.
12.5 Safety Appliances.
To keep the Premises equipped with all safety appliances required by law
or ordinance or any other regulation of any public authority because of any use
made by Tenant other than normal office use, and to procure all licenses and
permits so required because of such use and, if requested by Landlord, to do
any work so required because of such use, it being understood that the
foregoing provisions shall not be construed to broaden in any way Tenant's
Permitted Uses.
12.6 Assignment; Sublease.
(a) Not to assign, mortgage, pledge or otherwise transfer this Lease or to
make any sublease, or to permit occupancy of the Premises or any part thereof
by anyone other than Tenant except with the prior written consent of Landlord,
which consent shall not be unreasonably
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withheld. In connection with any request by Tenant for such consent to
assignment or subletting, Tenant shall submit to Landlord in writing (i) the
name of the proposed assignee or subtenant, (ii) such information as to its
financial responsibility and standing as Landlord may reasonably require, and
(iii) all of the terms and provisions upon which the proposed assignment or
subletting is to be made.
(b) As additional rent, Tenant shall reimburse Landlord promptly for
reasonable legal and other expenses incurred by Landlord in connection with any
request by Tenant for consent to assignment or subletting.
12.7 Indemnity and Insurance.
(a) To defend with counsel first approved by Landlord, save harmless, and
indemnify Landlord from any liability for injury, loss, accident or damage to
any person or property, and from any claims, actions, proceedings and expenses
and costs in connection therewith (including without limitation reasonable
actual counsel fees), (i) arising from the omission, fault, willful act,
negligence or other misconduct of Tenant, or (ii) resulting from the failure of
Tenant to perform and discharge its covenants and obligations under this Lease.
(b) To obtain, at Tenant's sole cost and expense, during the entire Term,
keep the following insurance:
(i) Property insurance including fire, extended coverage, vandalism,
malicious mischief and all risks coverage upon property of every
description and kind owned by Tenant and located on the Premises or for
which Tenant is legally liable or installed by or on behalf of Tenant
including, without limitation, furniture, fittings, installations,
including Tenant's fixtures and any other personal property, in such
reasonable amounts and with such reasonable deductibles as would be
carried by a prudent owner thereof.
(ii) A policy of Comprehensive Liability Insurance coverage to include
personal injury, bodily injury, broad form property damage,
premises/operations, owner's protective coverage, blanket contractual
liability, products and completed operations liability in limits not less
than One Million and No/100 Dollars ($1,000,000.00) inclusive. Such
policy shall name Landlord and its mortgagees, if any, as additional
insureds.
(iii) Any other form or forms of insurance as Landlord or the mortgagees
or ground lessor of Landlord may reasonably require from time to time in
form, in amounts and for insurance risks against which a prudent tenant
would protect itself.
(c) All policies shall be taken out with insurers reasonably acceptable to
Landlord and in form satisfactory from time to time to Landlord. Tenant agrees
that certificates of insurance in a form and substance satisfactory to Landlord
and the mortgagees and ground lessor of the Landlord or, if required by
Landlord or the mortgagees or ground lessor of the Landlord, certified copies
of each such insurance policy, shall be delivered to Landlord as soon as
practicable after
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the placing of the required insurance, but in no event later than thirty (30)
days after Tenant takes possession of all or any part of the Premises.
(d) In the event of damage or destruction of the Premises entitling
Landlord to terminate this Lease and if Landlord terminates this Lease, to
immediately pay to Landlord all of Tenant's insurance proceeds relating to the
current improvements and alterations (but not as to Tenant's trade fixtures,
equipment, furniture or other personal property of Tenant) in the Premises. If
the termination of the Lease, at Landlord's election, is due to damage to the
easement areas, and if the Premises have not been damaged, Tenant will deliver
to Landlord, in accordance with the provisions of this Lease, the Premises,
Improvements, and alterations.
(e) Not to keep or use in or upon the Premises any article which may be
prohibited by any insurance policy in force from time to time covering the
Building and Premises Improvements.
(f) If any insurance policy carried by Landlord with respect to the
Building shall be cancelled or cancellation shall be threatened or the coverage
thereunder reduced or threatened to be reduced, in any way by reason of the use
or occupation of the Leased Premises or any part thereof by Tenant or by any
assignee or subtenant of Tenant or by anyone permitted by Tenant to be upon the
Premises and, if Tenant fails to remedy the condition giving rise to
cancellation, threatened cancellation or reduction of coverage within
forty-eight (48) hours after notice thereof, such failure shall be deemed a
default under this Lease, and Landlord, without limitation of the other
remedies available to Landlord, enter upon the Premises and attempt to remedy
such condition in which event Tenant shall pay immediately to Landlord the
costs associated with such termination or entry and attempt to remedy as
additional rent. Landlord shall not be liable for any damage or injury caused
to any property of Tenant or of others located in the Premises as a result of
such an entry. Notwithstanding the foregoing provisions of this Subsection, if
Tenant fails to remedy as aforesaid, Tenant shall be in default of its
obligations hereunder and Landlord shall have no obligation to attempt to
remedy such default.
12.8 Personal Property at Tenant's Risk.
That all of the furnishings, fixtures, equipment, effects and property of
every kind, nature and description of Tenant and all persons claiming by,
through or under Tenant which, during the continuance of this Lease or any
occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on
the Premises or elsewhere on the Lots, shall be at the sole risk and hazard of
Tenant, and if the whole or any part thereof shall be destroyed or damaged by
fire, water or otherwise, or by theft or from any other cause, no part of said
loss or damage is to be charged to or be borne by Landlord, except that
Landlord shall in no event be indemnified or held harmless or exonerated from
any liability to Tenant or to any person, for any injury, loss, damage or
liability to the extent such indemnity, hold harmless or exoneration is
prohibited by law.
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12.9 Right of Entry.
To permit Landlord and its agents to examine the Premises at reasonable
times and, if Landlord shall so elect, to make any repairs or replacements
Landlord may deem necessary; to remove, at Tenant's expense, any alterations,
additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles, or the
like not consented to by Landlord in writing; and to show the Premises to
prospective Tenants during the six (6) months preceding expiration of the Term
and to prospective purchasers and mortgagees at all reasonable times.
12.10 Floor Load and Prevention of Vibration and Noise.
Not to place an excessive or unsafe load upon the Premises; Landlord
reserves the right to prescribe the weight and position of all safes, files and
heavy equipment which Tenant desires to place in the Premises so as properly to
distribute the weight thereof. Tenant's business machines and mechanical
equipment which cause vibration or noise that may be transmitted to any other
adjacent real estate owned by Landlord shall be so installed, maintained and
used by Tenant at Tenant's expense as to eliminate such vibration or noise.
Tenant shall be responsible for the cost of all structural engineering required
to determine structural load and all acoustical engineering required to address
any noise or vibration caused by Tenant.
12.11 Personal Property Taxes.
To pay promptly when due all taxes which may be imposed upon personal
property in the Premises.
12.12 Payment of Expenses.
As Additional Rent, to pay all actual reasonable attorneys' fees and
reasonable costs and other fees incurred by Landlord in connection with the
enforcement by Landlord of any obligations of Tenant under this Lease.
12.13 Rules and Regulations.
To comply with all of Landlord's reasonable rules and regulations now or
hereafter made by Landlord for the care and use of the Building and Parking Lot
and their facilities and approaches.
12.14 Environmental Compliance.
Not cause any hazardous wastes, toxic substances or related materials
(collectively "Hazardous Materials") to be used, generated, stored or disposed
of on, under or about, or transported to or form, the Property (collectively
"Hazardous Materials Activities") without first receiving Landlord's written
consent, which may be withheld for any reason whatsoever and which may be
revoked at any time, and then only in compliance (which shall be at Tenant's
sole
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cost and expense) with all applicable Laws, Rules and Regulations and using all
necessary and appropriate precautions. Landlord shall not be liable to Tenant
for any Hazardous Materials Activities by Tenant, Tenant's employees, agents,
contractors, licenses or invitees. Tenant shall indemnify, defend with counsel
acceptable to Landlord and hold Landlord harmless from any against any claims,
damages, costs and liabilities arising out of Tenant's Hazardous Materials
Activities on, under or about the Property. Landlord shall not be liable to
Tenant regardless of whether or not Landlord has approved Tenant's Hazardous
Materials Activities. For the purposes of this Section, Hazardous Materials
shall include but not be limited to substances defined as "hazardous
substances" or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time; and those
substances defined as "hazardous wastes" in the laws of the State of Illinois
and in the regulations adopted and publications promulgated pursuant to said
laws.
SECTION 13
CASUALTY AND TAKING
13.1 Termination or Restoration.
In case during the Term all or any substantial part of the Premises, which
shall be deemed to mean twenty-five percent (25%) or more of the Premises
and/or the Lots, are damaged materially by fire or other casualty or by action
of public or other authority in consequence thereof, this Lease shall terminate
at Landlord's election, which may be made notwithstanding that Landlord's
entire interest may have been divested, by notice given to Tenant within ninety
(90) days after the election to terminate arises specifying the effective date
of termination. The effective date of termination specified by Landlord shall
not be less than sixty (60) nor more than ninety (90) days after the date of
notice of such termination.
Unless terminated pursuant to the foregoing provisions, this Lease shall
remain in full force and effect following any such damage or taking, subject,
however, to the following provisions. If in any such case the Premises are
rendered unfit for use and occupation and this Lease is not terminated,
Landlord shall use due diligence (following the expiration of the period in
which Landlord may terminate this Lease pursuant to the foregoing provisions of
this Section) to put the Premises (excluding any items installed or paid for by
Tenant which Tenant may be required to remove pursuant to this Lease), into
proper condition for use and occupancy and a just proportion of the Annual
Fixed Rent and Additional Rent shall be abated from the date of such casualty
until the Premises or such remainder shall have been put in such condition by
Landlord.
13.2 Eminent Domain.
In case the whole of the Premises, or such part thereof as shall
substantially interfere with Tenant's use and occupancy thereof, shall be taken
for any public or quasi-public purpose by any lawful power or authority by
exercise of the right of appropriation, condemnation or eminent
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domain, or sold to prevent such taking, either party shall have the right to
terminate this Lease effective as of the date possession is required to be
surrendered to said authority. Proportionate allowance shall be made to Tenant
for the rent corresponding to the time during which, and to the part of the
Premises of which, Tenant shall be so deprived on account of such taking and
restoration. Nothing contained in this Section shall be deemed to give Landlord
any interest in any award made to Tenant for the taking of Tenant's Leasehold
interest, personal property and fixtures.
13.3 Temporary Taking.
In the event of taking of the Premises or any part thereof for temporary
use, (i) this Lease shall be and remain unaffected thereby and rent shall not
abate, and (ii) Tenant shall be entitled to receive for itself such portion or
portions of any award made for such use with respect to the period of the
taking which is within the Term, provided that if such taking shall remain in
force at the expiration or earlier termination of this Lease, Tenant shall then
pay to Landlord a sum equal to the reasonable cost of performing Tenant's
obligations under this Lease with respect to surrender of the Premises and upon
such payment shall be excused from such obligations.
SECTION 14
DEFAULT
14.1 Events of Default.
(a) The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:
(i) he failure by Tenant to make any payment of rent or additional
rent or any other payment required hereunder, as and when due, where
such failure shall continue for a period of five (5) days after
written notice thereof from Landlord to Tenant.
(ii) The vacation or abandonment of the Premises by Tenant.
(iii) The failure by Tenant to observe or perform any of the express
or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in clauses (i) and (ii)
above, where such failure shall continue for a period of more than
thirty (30) days after written notice thereof from Landlord to Tenant;
provided, however, that if the nature of Tenant's default is such that
more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant shall commence
such cure within said thirty (30) day period and thereafter diligently
prosecute such cure to completion, which completion shall occur not
later than ninety (90) days from the date of such notice from
Landlord.
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(iv) The failure by Tenant or any guarantor of any of Tenant's
obligations under this Lease to pay its debts as they become due,
or Tenant or any such guarantor becoming insolvent, filing or having
filed against it a petition under any chapter of the United States
Bankruptcy Code, (or any similar petition under any insolvency law of
any jurisdiction), proposing any dissolution, liquidation,
composition, financial reorganization or recapitalization with
creditors, making an assignment or trust mortgage for the benefit of
creditors, or if a receiver, trustee, custodian or similar agent is
appointed or takes possession with respect to any property or business
of Tenant or such guarantor.
SECTION 15
REMEDIES
15.1 Remedies.
(a) In the event of any such default by Tenant, whether or not the Term
shall have begun, in addition to any other remedies available to Landlord at
law or in equity, Landlord shall have the immediate option, or the option at
any time while such default exists, and with demand, to terminate this Lease
and Tenant's right to possession of the Premises. Upon termination of this
Lease, whether by lapse of time or otherwise, Tenant shall surrender possession
and vacate the Premises immediately, and deliver possession thereof to the
Landlord. Tenant hereby grants to Landlord full and free license to enter into
and upon the Premises in such event, and to repossess Landlord of the Premises
as of Landlord's former estate and to expel or remove Tenant and any others who
may be occupying or within the Premises and to remove any and all property
therefrom, without relinquishing the Landlord's rights to rent or any other
right given to Landlord hereunder or by operation of law.
(b) In the event that this Lease is terminated under any of the provisions
contained in this Section or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay immediately upon demand by
Landlord, as compensation, the excess of the total rent reserved for the
remainder of the Term over the rental value of the Premises for said remainder
of the Term, provided, however, that Landlord shall mitigate its damages by
making good faith and diligent efforts to relet the Premises or any part
thereof for the account of Tenant to any person, firm or corporation for such
rent, for such time and upon such terms as Landlord in Landlord's reasonable
discretion shall determine, Landlord shall not be required to accept any tenant
offered by Tenant or to observe any instruction given by Tenant about such
reletting. In any such case, Landlord may make repairs, alterations and
additions in or to the Premises and redecorate the same to the extent deemed by
Landlord necessary or desirable. If the consideration collected by Landlord
upon any reletting of the Premises for Tenant's account is not sufficient to
pay monthly the full amount of the Annual Fixed Rent and Additional Rent
reserved in this Lease, together with the costs of repairs, alterations,
additions, redecorating and Landlord's other costs and expenses of regaining
possession and reletting the Premises, Tenant shall pay to Landlord the amount
of each monthly deficiency upon demand.
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(c) All rights, options and remedies of Landlord contained in this Lease
shall be construed and held to be cumulative, and no one of them shall be
exclusive of the other, and Landlord shall have the right to pursue any one or
all of such remedies or any other remedy or relief which may be provided by
law, whether or not stated in this Lease. No waiver of any default of Tenant
hereunder shall be implied from any acceptance by Landlord of any rent or other
payments due hereunder or any omission by Landlord to take any action on
account of such default if such default persists or is repeated, and no express
waiver shall affect defaults other than as specified in said waiver. The
consent or approval of Landlord to or of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent or approval to or of any subsequent similar acts by Tenant.
(d) In lieu of any other damages or indemnity and in lieu of full recovery
by Landlord of all sums payable under all the foregoing provisions of this
Section, Landlord may by written notice to Tenant, at any time after this Lease
is terminated under any of the provisions in this Lease or is otherwise
terminated for breach of any obligation of Tenant and before such full
recovery, elect to recover, and Tenant shall thereupon pay, as liquidated
damages, an amount equal to the aggregate of the Annual Fixed Rent and
Additional Rent accrued in the three (3) months ended next prior to such
termination plus the amount of Annual Fixed Rent and Additional Rent of any
kind accrued and unpaid at the time of termination and less the amount of any
recovery by Landlord under the foregoing provisions of this Section up to the
time of payment of such liquidated damages.
(e) Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove and obtain in proceedings for bankruptcy or insolvency by
reason of the termination of this Lease, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount
be greater, equal to, or less than the amount of the loss or damages referred
to above.
SECTION 16
MISCELLANEOUS
16.1 Headings, Recordation, Notices, and Bind and Inure.
(a) The titles of the Sections are for convenience only and are not to be
considered in construing this Lease.
(b) Tenant agrees not to record this Lease.
(c) Whenever any notice, approval, consent, request or election is given
or made pursuant to this Lease it shall be in writing. Communications and
payments shall be addressed if to Landlord at Landlord's Original Address or at
such other address as may have been specified by prior notice to Tenant, and if
to Tenant, at Tenant's Original Address and, upon Tenant's
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taking occupancy of the Premises, at the address of the Premises, or at such
other place as may have been specified by prior notice to Landlord. Any
communication so addressed shall be deemed duly given when mailed by registered
or certified mail, return receipt requested. If Landlord by notice to Tenant
at any time designates some other person to receive payments or notices, all
payments or notices thereafter by Tenant shall be paid or given to the person
designated until notice to the contrary is received by Tenant from Landlord.
(d) The obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that only the original Landlord named
herein shall be liable for obligations accruing before the beginning of the
Term, and thereafter the original Landlord named herein and each successive
owner of the Premises shall be liable only for obligations accruing during the
period of their respective ownership.
16.2 Landlord's Failure to Enforce.
The failure of Landlord to seek redress for violation of, or to insist
upon strict performance of any covenant or condition of this Lease, or with
respect to such failure of Landlord to enforce any of the Rules and
Regulations, whether heretofore or hereafter adopted by Landlord, shall not be
deemed a waiver of such violation nor prevent a subsequent act which would have
originally constituted a violation from having all the force and effect of any
original violation, nor shall the failure of Landlord to enforce any of said
Rules and Regulations against any other tenant of the Building be deemed a
waiver of any such Rule or Regulation. The receipt by Landlord of Annual Fixed
Rent or Additional Rent with knowledge of the breach of any covenant of this
Lease shall not be deemed a waiver of such breach. No provision of this Lease
shall be deemed to have been waived by Landlord, or by Tenant, unless such
waiver be in writing signed by the party to be charged. No consent or waiver,
express or implied, by Landlord or Tenant, to or of any breach of any agreement
or duty shall be construed as a waiver or consent to or of any other breach of
the same or any other agreement or duty.
16.3 Acceptance of Partial Payments of Rent.
No acceptance by Landlord of a lesser sum than the Annual Fixed Rent and
Additional Rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such
installment or pursue any other remedy in this Lease provided.
16.4 Cumulative Remedies.
The specific remedies to which Landlord may resort under the provisions of
this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which it may be lawfully entitled in case of
any breach or threatened breach by Tenant of any
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provisions of this Lease. In addition to other remedies provided in this
Lease, Landlord shall be entitled to the restraint by injunction of the
violation or attempted or threatened violation of any of the covenants,
conditions or provisions of this Lease or to a decree compelling specific
performance of any such covenants, conditions or provisions.
16.5 Partial Invalidity.
If any provision of this Lease, or the application thereof to any person
or circumstances, shall to any extent be invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable shall
not be affected thereby, and each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
16.6 Self-Help.
If Tenant shall at any time default in the performance of any obligation
under this Lease, Landlord shall have the right, but shall not be obligated, to
enter upon the Premises and to perform such obligation notwithstanding the fact
that no specific provision for such substituted performance by Landlord is made
in this Lease with respect to such default. In performing such obligation,
Landlord may make any payment of money or perform any other act. All sums so
paid by Landlord (together with interest at the rate of one and one-half
(1-1/2) percentage points over the then prevailing prime rate ("Prime Rate") as
set by the LaSalle Bank of Lisle) and all necessary incidental costs and
expenses in connection with the performance of any such act by Landlord, shall
be deemed to be additional rent under this Lease and shall be payable to
Landlord immediately on demand. Landlord may exercise the foregoing rights
without waiving any other of its rights or releasing Tenant from any of its
obligations under this Lease.
16.7 Tenant's Estoppel Certificate.
(a) Tenant agrees from time to time, upon not less than ten (10) days
prior written request by Landlord, to execute, acknowledge and deliver to
Landlord a statement, in a form satisfactory to Landlord and the mortgagees
and/or ground lessor of Landlord, and providing the statement is truthful,
certifying that this Lease is unmodified and in full force and effect and that
Tenant has no defenses, offsets or counterclaims against its obligations to pay
the Annual Fixed Rent and Additional Rent and to perform its other covenants
under this Lease and that there are no uncured defaults of Landlord or Tenant
under this Lease (or, if there have been any modifications that the same is in
full force and effect as modified and stating the modifications and, if there
are any defenses, offsets, counterclaims, or defaults, setting them forth in
reasonable detail), and the dates to which the Annual Fixed Rent, Additional
Rent and other charges have been paid. Any such statement delivered pursuant
to this Section may be relied upon by a prospective purchaser, mortgagee or
ground lessor of the Premises or any prospective assignee of any mortgagee of
the Premises.
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(b) Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant (i) that this Lease is in full force and effect, without
modification except as may be represented by Landlord, (ii) that there are no
uncured defaults in Landlord's performance, and (iii) that not more than one
(1) month's rent has been paid in advance. Tenant's failure to deliver said
statement to Landlord within ten (10) days of receipt shall constitute a
default under this Lease, and Landlord may, at Landlord's option, terminate the
Lease, provided written notice of such termination is received by Tenant prior
to Landlord's receipt of said statement.
16.8 Waiver of Subrogation.
Any insurance carried by either party with respect to the Premises or
property therein or occurrences thereon shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this Lease to the
contrary, hereby waives any rights of recovery against the other for injury or
loss due to hazards covered by such insurance to the extent of the
indemnification received thereunder.
16.9 All Agreements Contained.
This Lease contains all of the agreements of the parties with respect to
the subject matter thereof and supersedes all prior dealings between them with
respect to such subject matter.
16.10 Brokerage.
The Landlord agrees to pay the Broker's commission of Three Thousand and
no/100 ($3,000.00) to Baird & Warner.
16.11 Applicable Law.
This Lease, and the rights and obligations of the parties hereto, shall
be construed and enforced in accordance with the laws of the State of Illinois.
16.12 Waiver of Jury Trial.
Landlord and Tenant hereby waive trial by jury in any action, proceeding
or counterclaim brought by either of the parties hereto against the other, on
or in respect to any matter whatsoever arising out of or in any way connected
with this Lease, the relationship of Landlord and Tenant hereunder, Tenant's
use or occupancy of the Premises, and/or claim of injury or damages.
16.13 Holdover.
Should Tenant hold over in occupancy of the Premises after the expiration
of the Term of this Lease, Tenant shall become a tenant at sufferance only, at
a rental rate equal to three hundred percent (300%) of the Annual Fixed Rent
rate in effect at the end of the Term, otherwise
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subject to all the terms, covenants and conditions herein specified, so far as
applicable, and shall be liable for all damages sustained by Landlord on
account of such holding over. The provisions of this Section shall not operate
as a waiver of any right of reentry provided in this Lease; and acceptance by
Landlord of rent after expiration of the Term or earlier termination of this
Lease shall not constitute consent to a holdover hereunder or result in a
renewal. If Tenant fails to surrender the Premises upon the expiration of the
Term or earlier termination despite demand by Landlord to do so, Tenant shall
indemnify and hold Landlord harmless from all loss or liability, including
without limitation, any claim made by any succeeding tenant founded on or
resulting from such failure to surrender.
16.14 Damage to Tenant's Property.
Notwithstanding any provisions hereof to the contrary, Landlord or its
agents shall not be liable for any damage to property entrusted to employees in
the Premises, nor for loss of or damage to any property by theft or otherwise,
nor for any injury or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak from any part of the Premises or from the pipes, appliances or plumbing
works therein or from the roof, street or subsurface or from any other place or
resulting from dampness or any other patent or latent cause whatsoever.
Landlord or its agents shall not be liable for interference with the light or
other incorporeal hereditaments. Tenant shall give prompt notice to Landlord
in the case of fire or accidents in the Premises or of defects therein or in
the fixtures or equipment located therein. Nothing contained herein shall
relieve Landlord of its liability for gross negligence.
16.15 Surrender of Premises.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies. Upon the expiration or termination of this Lease, Tenant shall
peaceably surrender the Premises and all alterations and additions thereto
broom-clean, in good order, repair and condition, reasonable wear and tear only
excepted.
16.16 Late Payment.
All covenants and agreements to be performed by Tenant under any
provisions of this Lease shall be performed by Tenant, at Tenant's sole cost
and expense. Tenant acknowledges that the late payment by Tenant to Landlord
of any sums due under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of such cost being extremely
difficult and impractical to fix. Such costs include, without limitation,
reasonable processing and accounting charges, and late charges that may be
imposed on Landlord by the terms of the encumbrance and note secured by an
encumbrance covering the Premises or the Building of which the Premises are a
part. Therefore, if any monthly installment of the Annual Fixed Rent is not
received by Landlord by the date when due, or if Tenant fails to pay any other
sum of money due hereunder and such failure continues for ten (10) days after
notice thereof by
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Landlord, Tenant shall pay to Landlord, as additional rent, the sum of five
percent (5%) of the overdue amount as a late charge. Such amount if not
received within said ten (10) days shall also bear interest, as additional
rent, at the Prime Rate as established by the LaSalle Bank of Lisle plus one
and one-half percent (1-1/2%) calculated from the date either the monthly
installment of Annual Fixed Rent is due, or of receipt of said notice (if for a
sum of money other than Annual Fixed Rent), until the date of payment to
Landlord. Landlord's acceptance of any late charge or interest shall not
constitute a waiver of Tenant's default with respect to the overdue amount or
prevent Landlord from exercising any of the other rights and remedies available
to Landlord under this Lease or any law now or hereafter in effect. Further,
in the event such late charge is imposed by Landlord for any two (2) months
during the Term hereof for whatever reason, Landlord shall have the option to
require that, beginning with the first payment of rent due following the
imposition of the second late charge, rent shall no longer be paid in monthly
installments one month in advance but shall be payable three (3) months in
advance on the first (1st) day of each calendar month.
16.17 Time.
Time is of the essence with respect to the performance of every
provision of this Lease in which time or performance is a factor.
16.18 Limitation On Liability.
The obligations of Landlord and Tenant under this Lease do not constitute
personal obligations of the individual partners, directors, officers or
shareholders of Landlord and Tenant, and the parties shall not seek recourse
against the individual partners, directors, officers or shareholders of
Landlord or Tenant or any of their personal assets for satisfaction of any
liability in respect to this Lease.
16.19 Corporation as Signatory.
If either party executes this Lease as a corporation, then that party and
the persons executing this Lease on behalf of that party represent and warrant
that the individuals executing this Lease on the Corporation's behalf are duly
authorized to execute and deliver this Lease on its behalf in accordance with a
duly adopted resolution of the board of directors of the Corporation, and in
accordance with the By-Laws of the Corporation and that this Lease is binding
upon the Corporation in accordance with its terms.
16.20 Riders and Exhibits.
Riders, exhibits, plans and plats, if any, affixed to this Lease are a
part hereof.
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SECTION 17
RIGHTS OF PARTIES HOLDING PRIOR INTERESTS
17.1 Lease Subordinate.
(a) Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and at the election of
Landlord or any first mortgagee with a lien on the Premises or any ground
lessor with respect to the Building (any reference in this Lease to a mortgage
shall include a ground lease, and any reference to a mortgagee shall include a
ground lessor), this Lease shall be subject and subordinate at all times to (i)
all ground leases or underlying leases which may now exist or hereafter be
executed affecting the Building or the land upon which the Building is
situated, or both, and (ii) the lien of any first mortgage or first deed of
trust which may now exist or hereafter be executed in any amount for which the
Premises, land, ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this Lease.
(b) In the event that any ground lease or underlying lease terminates for
any reasons or any first mortgage or first deed of trust is foreclosed or a
conveyance in lieu of foreclosure with respect to any such mortgage or deed of
trust is made for any reason, Tenant shall, notwithstanding any subordination,
attorn to and become the Tenant of the successor in interest to Landlord.
(c) Tenant shall not subordinate this Lease to any junior mortgage or deed
of trust without the prior written consent of first mortgagee or beneficiary
under the first deed of trust.
(d) Tenant covenants and agrees to reasonably execute and deliver, upon
demand by Landlord and in the form requested by Landlord, any additional
documents evidencing the priority or subordination of this Lease with respect
to any such ground leases or underlying leases or the lien or any such first
mortgage or first deed of trust. Should Tenant fail to sign and return any
such documents within ten (10) business days of receipt, Tenant shall be in
default, and Landlord may at Landlord's option, terminate this Lease provided
written notice of such termination is received by Tenant prior to Landlord's
receipt of such documents.
17.2 Rights of Holder of Mortgage to Notice of Defaults by Landlord.
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release or
termination of such obligations or a termination of this Lease unless (i)
Tenant shall have first given written notice of Landlord's act or failure to
act to the mortgagees of record, if any, specifying the act or failure to act
on the part of Landlord which could or would give basis to Tenant's rights; and
(ii) such mortgagees after receipt of such notice,
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have failed or refused to correct or cure the condition complained of within a
reasonable time thereafter; but nothing contained in this Section shall be
deemed to impose any obligation on any such mortgagees to correct or cure any
condition. "Reasonable time" as used above means and includes a reasonable
time to obtain possession of the mortgaged premises if the mortgagees elect to
do so and a reasonable time to correct or cure the condition if such condition
is determined to exist. Landlord will from time to time notify Tenant of the
names and addresses of such mortgagees.
17.3 Modification for Lender.
If, in connection with obtaining construction, interim or permanent
financing or refinancing for the Building, the lender shall request reasonable
modifications in this Lease as a condition to such financing or refinancing,
Tenant shall not unreasonably withhold, delay or defer its consent thereto,
provided that such modifications do not increase the obligations of Tenant
hereunder or materially adversely affect the leasehold interest created hereby
or Tenant's rights hereunder.
EXECUTED as a sealed instrument in one or more counterparts on the day and
year first above written.
GROVE LODGE No. 824 ANCIENT FREE MIDWEST BANK OF HINSDALE
AND ACCEPTED MASONS
BY: /s/ BY: /s/ James I. McMahon
---------------------------------- ---------------------------------
Worshipful Master (Title) President
ATTEST: /s/ ATTEST: /s/ Mary M. Henthorn
----------------------------- -----------------------------
Secretary Secretary
"LANDLORD" "TENANT"
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<PAGE> 1
EXHIBIT 10.8
OFFICE LEASE
925 CURTISS STREET
DOWNERS GROVE, ILLINOIS 60515
SECTION 1
TERMS
1.1 Terms.
Reference in this Lease to any of the following terms shall be construed
to mean the following:
(a) LANDLORD GROVE LODGE No. 824 ANCIENT FREE AND ACCEPTED MASONS
(b) LANDLORD'S ADDRESS 923 Curtiss Street
Downers Grove, Illinois 60515.
(c) TENANT MIDWEST BANK OF HINSDALE, an Illinois Corporation.
(d) TENANT'S ADDRESS 925 Curtiss Street
Downers Grove, Illinois 60515.
(e) PREMISES The West portion of lower level of the Building
commonly known as 925 Curtiss Street, Downers
Grove, Illinois 60515 and designated parking spaces
nos. 16, 17, 18, 27 & 28.
(f) SCHEDULED TERM
DATES September 1, 1997 to March 31, 2001.
(g) INITIAL TERM Three (3) years and seven months.
(h) MONTHLY RENT $1,800.00 per month 9/1/97 through 3/31/98
$1,854.00 per month 4/1/98 through 3/31/99
$1,909.00 per month 4/1/99 through 3/31/2000
$1,966.00 per month 4/1/2000 through 3/31/2001
(i) SHARE OF TAXES See rider attached hereto.
(j) UTILITIES Tenant to pay the utilities metered to the premises.
(k) PERMITTED USES General Office and Banking Purposes.
<PAGE> 2
(l) BROKER None.
(m) SECURITY DEPOSIT -0-
(n) DATE OF LEASE , 1997.
----------------------------------------------------
1.2 Exhibits.
There are attached hereto and incorporated as a part of this Lease:
EXHIBIT A - Landlord's Rules and Regulations
1.2A Rider.
There is attached hereto and incorporated as of part of this Lease a
Rider designated as Rider "A".
SECTION 2
PREMISES
2.1 The Premises.
(a) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises.
(b) The Premises exclude the other portions of the Building in which the
premises are located and pipes, ducts, conduits, wires and appurtenant fixtures
serving exclusively, or in common, other parts of the Building, except for the
common areas described hereinafter.
(c) By taking possession of the Premises, Tenant accepts the Premises in
their then condition, which shall be the same condition as of the date of this
Lease, ordinary wear and tear excepted.
(d) The parties hereto agree that this Lease is upon and subject to the
terms, covenants and conditions herein set forth and both parties covenant as a
material part of the consideration for this Lease to keep and perform each and
all of said terms, covenants and conditions by it to be kept and performed and
that this Lease is made upon the condition of such performance.
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<PAGE> 3
2.2 Right to Use Common Facilities.
Tenant shall have the right to use in common, subject to the Landlord's
reasonable rules and regulations, the following areas ("Common Areas")
appurtenant to the Premises:
(a) The common restrooms, Washington Street entrance and North storage
area, and the pipes, ducts, conduits, wires and appurtenant meters and
equipment serving the Premises in common with the Building; and
(b) Common walkways and driveways necessary for access to the Building.
2.3 Landlord's Reservations.
Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use of the Premises, to:
(a) Install, use, maintain, repair, replace and relocate for service to
the Premises and Building, or any portion thereof, pipes, ducts, conduits,
wires and appurtenant fixtures, wherever located in the Premises or Building;
(b) Alter or relocate any other common facility, provided that
substitutions are substantially equivalent or better;
(c) Close temporarily any of the Common Areas for maintenance and repair
purposes so long as reasonable access to the Premises remains available;
(d) Use the Common Areas while engaged in maintaining or making additional
improvements, repairs or alterations to the Premises and Building, or any
portion thereof;
Installations, replacements and relocations referred to above shall be
located so far as practicable in the central core area of the Building, above
ceiling surfaces, below floor surfaces or within perimeter walls of the
Premises.
SECTION 3
TERM
3.1 Term.
(a) Tenant shall have and hold the Premises for the Term of this Lease
which shall be that period commencing that date on which Tenant commences
occupancy of the Premises for the Permitted Uses ("Commencement Date") and
ending on the expiration of such period (or, if such period would expire on a
day other than the last day of a calendar month, ending on the
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next succeeding last day of a calendar month), unless the Term shall be sooner
terminated as hereinafter provided.
SECTION 4
RENT
4.1 Monthly Fixed Rent Payments.
(a) Tenant shall pay, without notice or demand and without any deductions
or offsets, monthly in advance on the first (1st) day of each month for each
full calendar month of the Term, and the corresponding fraction of said amounts
for any fraction of a calendar month at the beginning or end of the Term,
except as provided in the Rider hereto.
(b) In addition to said Annual Fixed Rent, Tenant agrees to pay the
utilities metered to the premises.
SECTION 5
SECURITY DEPOSIT
5.1 Security Deposit.
No deposit is required.
SECTION 6
CONDITION OF PREMISES
6.1 Condition of the Premises.
The taking of possession of the Premises by Tenant shall conclusively
establish that the Premises and the Building were at such time in satisfactory
condition.
SECTION 7
ALTERATIONS
7.1 Future Alterations and Additions.
(a) Tenant may, at any time and from time to time during the Term of this
Lease, at its sole cost and expense, make alterations, additions,
installations, substitutes, improvements and decorations (hereinafter
collectively called "changes") in and to the Premises, excluding structural
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<PAGE> 5
changes, on the following conditions, provided such changes will not result in
a violation of applicable Codes:
(i) No changes shall weaken or impair the structural strength or create
the potential for unusual expenses to be incurred upon the removal of
Tenant's Changes and the restoration of the Premises upon the termination
of this Lease.
(ii) The proper functioning of any of the mechanical, electrical,
sanitary and other service systems or installations of the Building
("Service Facilities") shall not be adversely affected and there shall be
no construction which might interfere with Landlord's free access to the
Service Facilities or interfere with the moving of Landlord's equipment
to or from the enclosures containing the Service Facilities.
(iii) In performing the work involved in making such changes, Tenant
shall be bound by and observe all of the conditions and covenants
contained in this Section.
(iv) All work shall be done at such times and in such manner as Landlord
from time to time may reasonably designate.
(v) Tenant shall not be permitted to install and make part of the
Premises any materials, fixtures or articles which are subject to liens,
conditional sales, contracts or chattel mortgages.
(b) Before proceeding with any change (exclusive of changes to items
constituting Tenant's personal property which will have no adverse effect on
the electrical, plumbing or HVAC systems), Tenant shall submit to Landlord
plans and specifications for the work to be done, and shall obtain Landlord's
written approval which shall not be unreasonably withheld. Landlord may at any
time confer with consultants in connection with the review of Tenant's plans
and specifications and the preparation of such drawings and may also submit to
such consultant(s) any of the plans prepared by Tenant. If Landlord or such
consultant(s) shall disapprove of any of the Tenant's plans, Landlord may
withhold its approval and Tenant shall be advised of the reasons for such
disapproval.
(c) All changes and the performance thereof shall at all times comply with
(i) all laws, rules, orders, ordinances, directions, regulations and
requirements of all governmental authorities, agencies, offices, departments,
bureaus and boards having jurisdiction thereof, (ii) all rules, orders,
directions, regulations and requirements of the applicable fire rating bureau,
or any similar insurance body or bodies, and (iii) all rules and regulations of
Landlord, and Tenant shall cause changes to be performed in compliance
therewith and in good and first class workmanlike manner, using materials and
equipment identical to the current installations of the Building. The changes
shall be performed in such manner as not to interfere with the occupancy of any
other tenant in the Building nor delay, or impose any additional expense upon
Landlord in the construction, maintenance or operation of the Building, and
shall be performed by contractors or mechanics approved by Landlord and
submitted to Tenant pursuant to this Section, who shall
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coordinate their work in cooperation with any other work being performed with
respect to the Building. Throughout the performance of such changes, Tenant,
at its expense, shall carry, or cause to be carried, workmen's compensation
insurance in statutory limits, and general liability insurance for any
occurrence in or about the Building, of which Landlord and its managing agent
shall be named as parties insured, in such limits as Landlord may reasonably
prescribe, with insurers reasonably satisfactory to Landlord. Tenant shall
furnish Landlord with reasonably satisfactory evidence that such insurance is
in effect at or before the commencement of change and, on request at reasonable
intervals thereafter during the continuance of changes.
(d) Tenant further covenants and agrees that any mechanic's lien filed
against the Premises or against the Building for work claimed to have been done
for, or materials claimed to have been furnished to Tenant, will be discharged
by Tenant, by bond or otherwise, within ten (10) days after the filing thereof,
at the cost and expense of Tenant. If Tenant fails to so discharge any lien,
Landlord shall have the right, but not the obligation, to discharge such lien
at Tenant's expense which shall be paid as Additional Rent. All alterations,
decorations, additions or improvements upon the Premises, made by either party,
including (without limiting the generality of the foregoing) all wallcovering,
built-in cabinet work, paneling and the like, shall become the property of
Landlord, and shall remain upon and be surrendered with the Premises, as a part
thereof, at the end of the Term hereof.
(e) All articles of personal property and all business and trade fixtures,
machinery and equipment, furniture and movable partitions owned by Tenant or
installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant and may be removed by Tenant at any time during the Term
provided Tenant is not in default hereunder. If Tenant shall fail to remove
all of its effects from said Premises upon termination of this Lease for any
cause whatsoever, Landlord may, at its option, remove the same in any manner
that Landlord shall choose, and dispose of or store said effects without
liability to Tenant for any loss thereof, and Tenant agrees to pay Landlord
upon demand any and all expenses incurred in such disposal or removal,
including court costs and reasonable actual attorneys' fees and disposal and
storage fees on such effects for any length of time that the same shall be in
Landlord's possession, or Landlord may, at its option, without notice, sell or
dispose of said effects, or any of the same at private sale and without legal
process, for such price, if any, as Landlord may obtain and apply the proceeds
of such sale to any amounts due under this Lease from Tenant to Landlord and
upon the expenses incident to the removal, disposal or sale of said effects.
(f) Landlord reserves the right at any time and from time to time without
the same constituting an actual or constructive eviction and without incurring
any liability to Tenant therefor or otherwise affecting Tenant's obligations
under this Lease, to make such changes, alterations, additions, improvements,
repairs or replacements in or to the Lot or the Building (including the
Premises if required so to do by any law or regulation) and the fixtures and
equipment thereof, as well as in or to the street entrances, halls, passageways
and stairways thereof, to change the name by which the Building is commonly
known (upon notice to Tenant), as Landlord may deem necessary or desirable.
Nothing contained in this Section shall be deemed to relieve Tenant of any
duty, obligation or liability of Tenant with respect to making any repair,
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replacement or improvement or complying with any law, order or requirement of
any government or other authority.
SECTION 8
REPAIRS
8.1 Repairs.
(a) By entry hereunder, Tenant accepts the Premises as being in good
order, condition and repair. Tenant shall, when and if needed or whenever
reasonably requested by Landlord to do so, maintain and make repairs to the
Premises and every part thereof, to keep, maintain and preserve the Premises in
first class condition, excepting ordinary wear and tear. Tenant shall upon the
expiration or sooner termination of the Term hereof surrender the Premises to
Landlord in the same condition received, ordinary wear and tear excepted.
Landlord shall have no obligation to alter, remodel, improve, repair, decorate
or paint the Premises or any part thereof and the parties hereto affirm that
Landlord has made no representations to Tenant respecting the condition of the
Premises or the Building except as specifically herein set forth.
(b) Anything contained in the Subsection above to the contrary
notwithstanding, Landlord shall repair and maintain the structural portions of
the Building, including the plumbing, heating, ventilating, air-conditioning
and electrical systems installed or furnished by Landlord, unless such
maintenance and repairs are caused in part or in whole by the act, neglect,
fault of or the omission of any duty by Tenant, its agents, servants, employees
or invitees, in which case Tenant shall pay to Landlord, as additional rent,
the reasonable cost of such maintenance and repairs. Tenant shall maintain and
repair at its sole cost and expense, and with maintenance contractors approved
by Landlord, all Premises facilities, installed by Tenant or on behalf of
Tenant or existing in the Premises at the time of the delivery of possession of
the Premises to Tenant by Landlord. The provisions of the preceding sentence
of this Subsection shall not apply to the electrical, plumbing and HVAC systems
provided by Landlord to Tenant, which maintenance and repair shall be the
responsibility of the Landlord.
SECTION 9
TAXES ON TENANT'S PROPERTY
9.1 Taxes on Tenant's Property.
Tenant shall be liable for and shall pay at least ten (10) days before
delinquency, any taxes levied against any personal property or trade fixtures
placed by Tenant in or about the Premises.
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SECTION 10
DELAY IN SERVICE AND REPAIR
10.1 Interruptions and Delays in Service and Repairs.
(a) Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of or
interference with business arising from the Landlord or its agents entering the
Premises for any of the purposes authorized in this Lease, or for repairing the
Premises or any portion of the Building however the necessity may occur. In
case Landlord is prevented or delayed from making any repairs, alterations or
improvements, or furnishing any services or performing any other covenant or
duty to be performed on Landlord's part, by reason of any cause reasonably
beyond Landlord's control, Landlord shall not be liable to Tenant therefor, nor
shall Tenant be entitled to any abatement or reduction of rent by reason
thereof, nor shall the same give rise to a claim in Tenant's favor that such
failure constitutes actual or constructive, total or partial, eviction from the
Premises unless such delay shall last fourteen (14) days or more.
(b) Landlord reserves the right to stop any service or utility system,
when necessary by reason of accident or emergency, or until necessary repairs
have been completed; provided, however, that in each instance of stoppage
Landlord shall exercise reasonable diligence to eliminate the cause thereof.
Except in case of emergency repairs Landlord will give Tenant reasonable
advance notice of any contemplated stoppage and will use reasonable efforts to
avoid unnecessary inconvenience to Tenant by reason thereof.
SECTION 11
LANDLORD'S COVENANTS
Landlord covenants during the Term:
11.1 Services Furnished by Landlord.
To furnish utilities, facilities and supplies and specific services, equal
in quality to those customarily provided by landlords in comparable quality
buildings in the west suburban Chicago area. In the event that Landlord is
prevented or delayed from providing any service, Landlord shall not be liable
to Tenant therefor, nor except as expressly otherwise provided hereafter shall
Tenant be entitled to any abatement or reduction of rent by reason thereof, nor
shall the same give rise to a claim in Tenant's favor that such failure
constitutes actual or constructive, total or partial, eviction from the
Premises, unless such delay lasts fourteen (14) business days or more.
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11.2 Roof, Exterior Wall, Floor Slab, and Common Facility Repairs.
Except as otherwise provided hereafter, to make such repairs to the roof,
exterior walls, floor slabs, and common areas as may be necessary to keep them
in serviceable condition.
11.3 Obligation to Insure.
Landlord covenants and agrees that throughout the Term it will insure the
Building (excluding any property with respect to which Tenant is obligated to
insure pursuant to the provisions of this Lease) against damage by fire and
extended coverage perils and public liability insurance in such reasonable
amounts with such reasonable deductibles as would be carried by a prudent owner
of a similar building in the geographic area in which the Building is situated.
Notwithstanding any contribution by Tenant to the cost of insurance premiums,
with respect to the Building or any alterations of the Premises as provided
herein, Tenant acknowledges that it has no right to receive any proceeds from
any such insurance policies carried by Landlord, although Landlord shall use
such proceeds in the repair and reconstruction of the Building and the Premises
unless the provisions of this Lease shall apply. Landlord will not carry
insurance of any kind on Tenant's furniture or furnishings, or on any fixtures,
equipment, improvements or appurtenances of Tenant under this Lease, and
Landlord shall not be obligated to repair any damage thereto or replace the
same.
SECTION 12
TENANT'S COVENANTS
Tenant covenants during the Term and such further time as Tenant occupies
any part of the Premises:
12.1 Payments.
To pay when due, without deductions or offsets, all Rent and all charges
for utility services rendered to the Premises.
12.2 Repair and Surrender.
Except as provided otherwise in this Lease, to keep the Premises in good
order, repair and condition, reasonable wear and tear only excepted, and all
glass in windows (except glass in exterior walls of the Building unless the
damage thereto is attributable to Tenant's negligence or misuse) and doors of
the Premises whole and in good condition with glass of the same quality as that
injured or broken, damage by fire only excepted, and at the expiration or
termination of the Term peaceably to yield up the Premises and all alterations
and additions thereto in good order, repair and condition, reasonable wear and
tear excepted, first removing all goods and effects of Tenant and, to the
extent specified by Landlord by notice to Tenant given at least sixty (60) days
before such expiration or termination, all alterations and additions made by
Tenant and
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all partitions, and repairing any damage caused by such removal and restoring
the Premises and leaving them clean and neat.
12.3 Use.
To use and occupy continuously the Premises for the Permitted Use and
purposes incident thereto and not to use or permit the Premises to be used for
any other purpose without the prior written consent of Landlord. Tenant shall
not use or occupy the Premises in violation of any recorded covenants,
conditions and restrictions affecting the Lot or of any law or of the
Certificate of Occupancy issued for the Building of which the Premises is a
part, and shall, upon five (5) days written notice from Landlord, discontinue
any use of the Premises which is declared by any governmental authority having
jurisdiction to be a violation of any recorded covenants, conditions and
restrictions affecting the Lot or of any law or of said Certificate of
Occupancy. Tenant shall comply with any directive of any governmental
authority having jurisdiction which shall, by reason of the nature of Tenant's
use or occupancy of the Premises, impose any duty upon Tenant or Landlord with
respect to the Premises or with respect to the use or occupation thereof.
Tenant shall upon demand immediately reimburse Landlord as additional rent for
any costs incurred by Landlord as a result of Tenant's failure to comply with
the provisions of this Section. Tenant shall not do or permit to be done
anything in or about the Premises which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Building or injure or
annoy them, or use or allow to be used the Premises for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises. Tenant shall not commit or suffer
to be committed any waste in or upon the Premises and shall keep the Premises
in first class repair and appearance.
12.4 Obstructions and Items Visible from Exterior.
Not to obstruct in any manner any portion of the Building not hereby
leased or any portion thereof or of the Lot used by Tenant in common with
others; not without prior written consent of Landlord to permit the painting or
placing of any signs, curtains, blinds, shades, awnings, aerials or flagpoles,
or the like, visible from outside the Premises.
12.5 Safety Appliances.
To keep the Premises equipped with all safety appliances required by law
or ordinance or any other regulation of any public authority because of any use
made by Tenant other than normal office use, and to procure all licenses and
permits so required because of such use and, if requested by Landlord, to do
any work so required because of such use, it being understood that the
foregoing provisions shall not be construed to broaden in any way Tenant's
Permitted Uses.
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12.6 Assignment; Sublease.
(a) Not to assign, mortgage, pledge or otherwise transfer this Lease or to
make any sublease, or to permit occupancy of the Premises or any part thereof
by anyone other than Tenant except with the prior written consent of Landlord,
which consent shall not be unreasonably withheld. In connection with any
request by Tenant for such consent to assignment or subletting, Tenant shall
submit to Landlord in writing (i) the name of the proposed assignee or
subtenant, (ii) such information as to its financial responsibility and
standing as Landlord may reasonably require, and (iii) all of the terms and
provisions upon which the proposed assignment or subletting is to be made.
(b) Reserved.
(c) Reserved.
(d) As additional rent, Tenant shall reimburse Landlord promptly for
reasonable legal and other expense incurred by Landlord in connection with any
request by Tenant for consent to assignment or subletting.
12.7 Indemnity and Insurance.
(a) To defend with counsel first approved by Landlord, save harmless, and
indemnify Landlord from any liability for injury, loss, accident or damage to
any person or property, and from any claims, actions, proceedings and expenses
and costs in connection therewith (including without limitation reasonable
actual counsel fees), (i) arising from the omission, fault, willful act,
negligence or other misconduct of Tenant, or (ii) resulting from the failure of
Tenant to perform and discharge its covenants and obligations under this Lease.
(b) To obtain, at Tenant's sole cost and expense, during the entire Term,
and maintain and keep in full force and effect, the following insurance:
(i) Property insurance including fire, extended coverage, vandalism,
malicious mischief and all risks coverage upon property of every
description and kind owned by Tenant and located in the Building or for
which Tenant is legally liable or installed by or on behalf of Tenant
including, without limitation, furniture, fittings, installations,
including Tenant's fixtures and any other personal property, in such
reasonable amounts and with such reasonable deductibles as would be carried
by a prudent owner thereof.
(ii) A policy of Comprehensive Liability Insurance coverage to include
personal injury, bodily injury, broad form property damage,
premises/operations, owner's protective coverage, blanket contractual
liability, products and completed operations liability in limits not less
than One Million and No/100 Dollars ($1,000,000.00) inclusive. Such policy
shall name Landlord and its mortgagees as additional insureds.
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(iii) Any other form or forms of insurance as Landlord or the mortgagees
or ground lessor of Landlord may reasonably require from time to time in
form, in amounts and for insurance risks against which a prudent tenant
would protect itself.
(c) All policies shall be taken out with insurers reasonably acceptable to
Landlord and in form satisfactory from time to time to Landlord. Tenant agrees
that certificates of insurance in a form and substance satisfactory to Landlord
and the mortgagees and ground lessor of the Landlord or, if required by
Landlord or the mortgagees or ground lessor of the Landlord, certified copies
of each such insurance policy, shall be delivered to Landlord as soon as
practicable after the placing of the required insurance, but in no event later
than thirty (30) days after Tenant takes possession of all or any part of the
Premises.
(d) In the event of damage or destruction of the Building entitling
Landlord to terminate this Lease, if the Premises have also been damaged, and
if Landlord terminates this Lease, to immediately pay to Landlord all of
Tenant's insurance proceeds relating to the current improvements and
alterations (but not to Tenant's trade fixtures, equipment, furniture or other
personal property of Tenant) in the Premises. If the termination of the Lease,
at Landlord's election, is due to damage to the Building, and if the Premises
have not been damaged, Tenant will deliver to Landlord, in accordance with the
provisions of this Lease, the Premises Improvements, the alterations and the
Premises.
(e) Not to keep or use in or upon the Premises any article which may be
prohibited by any insurance policy in force from time to time covering the
Building and Premises Improvements.
(f) If any insurance policy carried by Landlord with respect to the
Building shall be cancelled or cancellation shall be threatened or the coverage
thereunder reduced or threatened to be reduced, in any way by reason of the use
or occupation of the Leased Premises or any part thereof by Tenant or by any
assignee or subtenant of Tenant or by anyone permitted by Tenant to be upon the
Premises and, if Tenant fails to remedy the condition giving rise to
cancellation, threatened cancellation or reduction of coverage within
forty-eight (48) hours after notice thereof, such failure shall be deemed a
default under this Lease, and Landlord, without limitation of the other
remedies available to Landlord, enter upon the Premises and attempt to remedy
such condition in which event Tenant shall pay immediately to Landlord the
costs associated with such termination or entry and attempt to remedy as
additional rent. Landlord shall not be liable for any damage or injury caused
to any property of Tenant or of others located in the Premises as a result of
such an entry. Notwithstanding the foregoing provisions of this Subsection, if
Tenant fails to remedy as aforesaid, Tenant shall be in default of its
obligations hereunder and Landlord shall have no obligation to attempt to
remedy such default.
12.8 Personal Property at Tenant's Risk.
That all of the furnishings, fixtures, equipment, effects and property of
every kind, nature and description of Tenant and all persons claiming by,
through or under Tenant which, during
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the continuance of this Lease or any occupancy of the Premises by Tenant or
anyone claiming under Tenant, may be on the Premises or elsewhere in the
Building or on the Lot, shall be at the sole risk and hazard of Tenant, and if
the whole or any part thereof shall be destroyed or damaged by fire, water or
otherwise, or by theft or from any other cause, no part of said loss or damage
is to be charged to or be borne by Landlord, except that Landlord shall in no
event be indemnified or held harmless or exonerated from any liability to
Tenant or to any person, for any injury, loss, damage or liability to the
extent such indemnity, hold harmless or exoneration is prohibited by law.
12.9 Right of Entry.
To permit Landlord and its agents to examine the Premises at reasonable
times and, if Landlord shall so elect, to make any repairs or replacements
Landlord may deem necessary; to remove, at Tenant's expense, any alterations,
additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles, or the
like not consented to by Landlord in writing; and to show the Premises to
prospective Tenants during the six (6) months preceding expiration of the Term
and to prospective purchasers and mortgagees at all reasonable times.
12.10 Floor Load and Prevention of Vibration and Noise.
Not to place an excessive or unsafe load upon the Premises; Landlord
reserves the right to prescribe the weight and position of all safes, files and
heavy equipment which Tenant desires to place in the Premises so as properly to
distribute the weight thereof. Tenant's business machines and mechanical
equipment which cause vibration or noise that may be transmitted to the
Building structure or to any other space in the Building shall be so installed,
maintained and used by Tenant at Tenant's expense as to eliminate such
vibration or noise. Tenant shall be responsible for the cost of all structural
engineering required to determine structural load and all acoustical
engineering required to address any noise or vibration caused by Tenant.
12.11 Personal Property Taxes.
To pay promptly when due all taxes which may be imposed upon personal
property in the Premises.
12.12 Payment of Expenses.
As Additional Rent, to pay all actual reasonable attorneys' fees and
reasonable costs and other fees incurred by Landlord in connection with the
enforcement by Landlord of any obligations of Tenant under this Lease.
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12.13 Rules and Regulations.
To comply with all of Landlord's reasonable rules and regulations now or
hereafter made by Landlord for the care and use of the Building and Parking Lot
and their facilities and approaches.
12.14 Environmental Compliance.
Not cause any hazardous wastes, toxic substances or related materials
(collectively "Hazardous Materials") to be used, generated, stored or disposed
of on, under or about, or transported to or form, the Property (collectively
"Hazardous Materials Activities") without first receiving Landlord's written
consent, which may be withheld for any reason whatsoever and which may be
revoked at any time, and then only in compliance (which shall be at Tenant's
sole cost and expense) with all applicable Laws, Rules and Regulations and
using all necessary and appropriate precautions. Landlord shall not be liable
to Tenant for any Hazardous Materials Activities by Tenant, Tenant's employees,
agents, contractors, licenses or invitees. Tenant shall indemnify, defend with
counsel acceptable to Landlord and hold Landlord harmless from any against any
claims, damages, costs and liabilities arising out of Tenant's Hazardous
Materials Activities on, under or about the Property. Landlord shall not be
liable to Tenant regardless of whether or not Landlord has approved Tenant's
Hazardous Materials Activities. For the purposes of this Section, Hazardous
Materials shall include but not be limited to substances defined as "hazardous
substances" or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time; and those
substances defined as "hazardous wastes" in the laws of the State of Illinois
and in the regulations adopted and publications promulgated pursuant to said
laws.
SECTION 13
CASUALTY AND TAKING
13.1 Termination or Restoration.
In case during the Term all or any substantial part of the Premises or the
Building (which shall be deemed to mean twenty-five percent (25%) or more of
the Premises or Building) or the Lot are damaged materially by fire or other
casualty or by action of public or other authority in consequence thereof, this
Lease shall terminate at Landlord's election, which may be made notwithstanding
that Landlord's entire interest may have been divested, by notice given to
Tenant within ninety (90) days after the election to terminate arises
specifying the effective date of termination. The effective date of
termination specified by Landlord shall not be less than sixty (60) nor more
than ninety (90) days after the date of notice of such termination.
Unless terminated pursuant to the foregoing provisions, this Lease shall
remain in full force and effect following any such damage or taking, subject,
however, to the following provisions. If in any such case the Premises are
rendered unfit for use and occupation and this
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Lease is not terminated, Landlord shall use due diligence (following the
expiration of the period in which Landlord may terminate this Lease
pursuant to the foregoing provisions of this Section) to put the Premises
(excluding any items installed or paid for by Tenant which Tenant may be
required to remove pursuant to this Lease), into proper condition for use and
occupancy and a just proportion of the Annual Fixed Rent and Additional Rent
shall be abated from the date of such casualty until the Premises or such
remainder shall have been put in such condition by Landlord.
13.2 Eminent Domain.
In case the whole of the Premises, or such part thereof as shall
substantially interfere with Tenant's use and occupancy thereof, shall be taken
for any public or quasi-public purpose by any lawful power or authority by
exercise of the right of appropriation, condemnation or eminent domain, or sold
to prevent such taking, either party shall have the right to terminate this
Lease effective as of the date possession is required to be surrendered to said
authority. Proportionate allowance shall be made to Tenant for the rent
corresponding to the time during which, and to the part of the Premises of
which, Tenant shall be so deprived on account of such taking and restoration.
Nothing contained in this Section shall be deemed to give Landlord any interest
in any award made to Tenant for the taking of Tenant's Leasehold interest,
personal property and fixtures.
13.3 Temporary Taking.
In the event of taking of the Premises or any part thereof for temporary
use, (i) this Lease shall be and remain unaffected thereby and rent shall not
abate, and (ii) Tenant shall be entitled to receive for itself such portion or
portions of any award made for such use with respect to the period of the
taking which is within the Term, provided that if such taking shall remain in
force at the expiration or earlier termination of this Lease, Tenant shall then
pay to Landlord a sum equal to the reasonable cost of performing Tenant's
obligations under this Lease with respect to surrender of the Premises and upon
such payment shall be excused from such obligations.
SECTION 14
DEFAULT
14.1 Events of Default.
(a) The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:
(i) The failure by Tenant to make any payment of rent or
additional rent or any other payment required hereunder, as and
when due, where such failure shall continue for a period of five
(5) days after written notice thereof from Landlord to Tenant.
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(ii) The vacation or abandonment of the Premises by Tenant.
(iii) The failure by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be
observed or performed by Tenant, other than as specified in clauses
(i) and (ii) above, where such failure shall continue for a period
of more than thirty (30) days after written notice thereof from
Landlord to Tenant; provided, however, that if the nature of
Tenant's default is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be deemed
to be in default if Tenant shall commence such cure within said
thirty (30) day period and thereafter diligently prosecute such
cure to completion, which completion shall occur not later than
ninety (90) days from the date of such notice from Landlord.
(iv) The failure by Tenant or any guarantor of any of Tenant's
obligations under this Lease to pay its debts as they become due,
or Tenant or any such guarantor becoming insolvent, filing or
having filed against it a petition under any chapter of the United
States Bankruptcy Code, (or any similar petition under any
insolvency law of any jurisdiction), proposing any dissolution,
liquidation, composition, financial reorganization or
recapitalization with creditors, making an assignment or trust
mortgage for the benefit of creditors, or if a receiver, trustee,
custodian or similar agent is appointed or takes possession with
respect to any property or business of Tenant or such guarantor.
SECTION 15
REMEDIES
15.1 Remedies.
(a) In the event of any such default by Tenant, whether or not the Term
shall have begun, in addition to any other remedies available to Landlord at
law or in equity, Landlord shall have the immediate option, or the option at
any time while such default exists, and with demand, to terminate this Lease
and Tenant's right to possession of the Premises. Upon termination of this
Lease, whether by lapse of time or otherwise, Tenant shall surrender possession
and vacate the Premises immediately, and deliver possession thereof to the
Landlord. Tenant hereby grants to Landlord full and free license to enter into
and upon the Premises in such event, and to repossess Landlord of the Premises
as of Landlord's former estate and to expel or remove Tenant and any others who
may be occupying or within the Premises and to remove any and all property
therefrom, without relinquishing the Landlord's rights to rent or any other
right given to Landlord hereunder or by operation of law.
(b) In the event that this Lease is terminated under any of the provisions
contained in this Section or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay immediately upon demand by
Landlord, as compensation, the excess of the total
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rent reserved for the remainder of the Term over the rental value of the
Premises for said remainder of the Term, provided, however, that Landlord
shall mitigate its damages by making good faith and diligent efforts to relet
the Premises or any part thereof for the account of Tenant to any person, firm
or corporation for such rent, for such time and upon such terms as Landlord in
Landlord's reasonable discretion shall determine, Landlord shall not be
required to accept any tenant offered by Tenant or to observe any instruction
given by Tenant about such reletting. In any such case, Landlord may make
repairs, alterations and additions in or to the Premises and redecorate the
same to the extent deemed by Landlord necessary or desirable. If the
consideration collected by Landlord upon any reletting of the Premises for
Tenant's account is not sufficient to pay monthly the full amount of the Annual
Fixed Rent and Additional Rent reserved in this Lease, together with the costs
of repairs, alterations, additions, redecorating and Landlord's other costs and
expenses of regaining possession and reletting the Premises, Tenant shall pay
to Landlord the amount of each monthly deficiency upon demand.
(c) All rights, options and remedies of Landlord contained in this Lease
shall be construed and held to be cumulative, and no one of them shall be
exclusive of the other, and Landlord shall have the right to pursue any one or
all of such remedies or any other remedy or relief which may be provided by
law, whether or not stated in this Lease. No waiver of any default of Tenant
hereunder shall be implied from any acceptance by Landlord of any rent or other
payments due hereunder or any omission by Landlord to take any action on
account of such default if such default persists or is repeated, and no express
waiver shall affect defaults other than as specified in said waiver. The
consent or approval of Landlord to or of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent or approval to or of any subsequent similar acts by Tenant.
(d) In lieu of any other damages or indemnity and in lieu of full recovery
by Landlord of all sums payable under all the foregoing provisions of this
Section, Landlord may by written notice to Tenant, at any time after this Lease
is terminated under any of the provisions in this Lease or is otherwise
terminated for breach of any obligation of Tenant and before such full
recovery, elect to recover, and Tenant shall thereupon pay, as liquidated
damages, an amount equal to the aggregate of the Annual Fixed Rent and
Additional Rent accrued in the three (3) months ended next prior to such
termination plus the amount of Annual Fixed Rent and Additional Rent of any
kind accrued and unpaid at the time of termination and less the amount of any
recovery by Landlord under the foregoing provisions of this Section up to the
time of payment of such liquidated damages.
(e) Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove and obtain in proceedings for bankruptcy or insolvency by
reason of the termination of this Lease, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount
be greater, equal to, or less than the amount of the loss or damages referred
to above.
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SECTION 16
MISCELLANEOUS
16.1 Headings, Recordation, Notices, and Bind and Inure.
(a) The titles of the Sections are for convenience only and are not to be
considered in construing this Lease.
(b) Tenant agrees not to record this Lease.
(c) Whenever any notice, approval, consent, request or election is given
or made pursuant to this Lease it shall be in writing. Communications and
payments shall be addressed if to Landlord at Landlord's Original Address or at
such other address as may have been specified by prior notice to Tenant, and if
to Tenant, at Tenant's Original Address and, upon Tenant's taking occupancy of
the Premises, at the address of the Premises, or at such other place as may
have been specified by prior notice to Landlord. Any communication so
addressed shall be deemed duly given when mailed by registered or certified
mail, return receipt requested. If Landlord by notice to Tenant at any time
designates some other person to receive payments or notices, all payments or
notices thereafter by Tenant shall be paid or given to the person designated
until notice to the contrary is received by Tenant from Landlord.
(d) The obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that only the original Landlord named
herein shall be liable for obligations accruing before the beginning of the
Term, and thereafter the original Landlord named herein and each successive
owner of the Premises shall be liable only for obligations accruing during the
period of their respective ownership.
16.2 Landlord's Failure to Enforce.
The failure of Landlord to seek redress for violation of, or to insist
upon strict performance of any covenant or condition of this Lease, or with
respect to such failure of Landlord to enforce any of the Rules and
Regulations, whether heretofore or hereafter adopted by Landlord, shall not be
deemed a waiver of such violation nor prevent a subsequent act which would have
originally constituted a violation from having all the force and effect of any
original violation, nor shall the failure of Landlord to enforce any of said
Rules and Regulations against any other tenant of the Building be deemed a
waiver of any such Rule or Regulation. The receipt by Landlord of Annual Fixed
Rent or Additional Rent with knowledge of the breach of any covenant of this
Lease shall not be deemed a waiver of such breach. No provision of this Lease
shall be deemed to have been waived by Landlord, or by Tenant, unless such
waiver be in writing signed by the party to be charged. No consent or waiver,
express or implied, by Landlord or Tenant, to or of any breach of any agreement
or duty shall be construed as a waiver or consent to or of any other breach of
the same or any other agreement or duty.
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16.3 Acceptance of Partial Payments of Rent.
No acceptance by Landlord of a lesser sum than the Annual Fixed Rent and
Additional Rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such
installment or pursue any other remedy in this Lease provided.
16.4 Cumulative Remedies.
The specific remedies to which Landlord may resort under the provisions of
this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which it may be lawfully entitled in case of
any breach or threatened breach by Tenant of any provisions of this Lease. In
addition to other remedies provided in this Lease, Landlord shall be entitled
to the restraint by injunction of the violation or attempted or threatened
violation of any of the covenants, conditions or provisions of this Lease or to
a decree compelling specific performance of any such covenants, conditions or
provisions.
16.5 Partial Invalidity.
If any provision of this Lease, or the application thereof to any person
or circumstances, shall to any extent be invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable shall
not be affected thereby, and each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
16.6 Self-Help.
If Tenant shall at any time default in the performance of any obligation
under this Lease, Landlord shall have the right, but shall not be obligated, to
enter upon the Premises and to perform such obligation notwithstanding the fact
that no specific provision for such substituted performance by Landlord is made
in this Lease with respect to such default. In performing such obligation,
Landlord may make any payment of money or perform any other act. All sums so
paid by Landlord (together with interest at the rate of one and one-half
(1-1/2) percentage points over the then prevailing prime rate ("Prime Rate") as
set by the LaSalle Bank of Lisle) and all necessary incidental costs and
expenses in connection with the performance of any such act by Landlord, shall
be deemed to be additional rent under this Lease and shall be payable to
Landlord immediately on demand. Landlord may exercise the foregoing rights
without waiving any other of its rights or releasing Tenant from any of its
obligations under this Lease.
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16.7 Tenant's Estoppel Certificate.
(a) Tenant agrees from time to time, upon not less than ten (10) days
prior written request by Landlord, to execute, acknowledge and deliver to
Landlord a statement, in a form satisfactory to Landlord and the mortgagees
and/or ground lessor of Landlord, and providing the statement is truthful,
certifying that this Lease is unmodified and in full force and effect and that
Tenant has no defenses, offsets or counterclaims against its obligations to pay
the Annual Fixed Rent and Additional Rent and to perform its other covenants
under this Lease and that there are no uncured defaults of Landlord or Tenant
under this Lease (or, if there have been any modifications that the same is in
full force and effect as modified and stating the modifications and, if there
are any defenses, offsets, counterclaims, or defaults, setting them forth in
reasonable detail), and the dates to which the Annual Fixed Rent, Additional
Rent and other charges have been paid. Any such statement delivered pursuant
to this Section may be relied upon by a prospective purchaser, mortgagee or
ground lessor of the Premises or any prospective assignee of any mortgagee of
the Premises.
(b) Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant (i) that this Lease is in full force and effect, without
modification except as may be represented by Landlord, (ii) that there are no
uncured defaults in Landlord's performance, and (iii) that not more than one
(1) month's rent has been paid in advance. Tenant's failure to deliver said
statement to Landlord within ten (10) days of receipt shall constitute a
default under this Lease, and Landlord may, at Landlord's option, terminate the
Lease, provided written notice of such termination is received by Tenant prior
to Landlord's receipt of said statement.
16.8 Waiver of Subrogation.
Any insurance carried by either party with respect to the Premises or
property therein or occurrences thereon shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this Lease to the
contrary, hereby waives any rights of recovery against the other for injury or
loss due to hazards covered by such insurance to the extent of the
indemnification received thereunder.
16.9 All Agreements Contained.
This Lease contains all of the agreements of the parties with respect to
the subject matter thereof and supersedes all prior dealings between them with
respect to such subject matter.
16.10 Brokerage.
The parties represent to each other that no Brokers brought about this
Lease.
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16.11 Applicable Law.
This Lease, and the rights and obligations of the parties hereto, shall
be construed and enforced in accordance with the laws of the State of Illinois.
16.12 Waiver of Jury Trial.
Landlord and Tenant hereby waive trial by jury in any action, proceeding
or counterclaim brought by either of the parties hereto against the other, on
or in respect to any matter whatsoever arising out of or in any way connected
with this Lease, the relationship of Landlord and Tenant hereunder, Tenant's
use or occupancy of the Premises, and/or claim of injury or damages.
16.13 Holdover.
Should Tenant hold over in occupancy of the Premises after the expiration
of the Term of this Lease, Tenant shall become a tenant at sufferance only, at
a rental rate equal to three hundred percent (300%) of the Annual Fixed Rent
rate in effect at the end of the Term, otherwise subject to all the terms,
covenants and conditions herein specified, so far as applicable, and shall be
liable for all damages sustained by Landlord on account of such holding over.
The provisions of this Section shall not operate as a waiver of any right of
reentry provided in this Lease; and acceptance by Landlord of rent after
expiration of the Term or earlier termination of this Lease shall not
constitute consent to a holdover hereunder or result in a renewal. If Tenant
fails to surrender the Premises upon the expiration of the Term or earlier
termination despite demand by Landlord to do so, Tenant shall indemnify and
hold Landlord harmless from all loss or liability, including without
limitation, any claim made by any succeeding tenant founded on or resulting
from such failure to surrender.
16.14 Damage to Tenant's Property.
Notwithstanding any provisions hereof to the contrary, Landlord or its
agents shall not be liable for any damage to property entrusted to employees of
the Building, nor for loss of or damage to any property by theft or otherwise,
nor for any injury or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak from any part of the Building or from the pipes, appliances or plumbing
works therein or from the roof, street or subsurface or from any other place or
resulting from dampness or any other patent or latent cause whatsoever.
Landlord or its agents shall not be liable for interference with the light or
other incorporeal hereditaments. Tenant shall give prompt notice to Landlord
in the case of fire or accidents in the Premises or Building or of defects
therein or in the fixtures or equipment located therein. Nothing contained
herein shall relieve Landlord of its liability for gross negligence.
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16.15 Surrender of Premises.
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies. Upon the expiration or termination of this Lease, Tenant shall
peaceably surrender the Premises and all alterations and additions thereto
broom-clean, in good order, repair and condition, reasonable wear and tear only
excepted.
16.16 Late Payment.
All covenants and agreements to be performed by Tenant under any
provisions of this Lease shall be performed by Tenant, at Tenant's sole cost
and expense. Tenant acknowledges that the late payment by Tenant to Landlord
of any sums due under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of such cost being extremely
difficult and impractical to fix. Such costs include, without limitation,
reasonable processing and accounting charges, and late charges that may be
imposed on Landlord by the terms of the encumbrance and note secured by an
encumbrance covering the Premises or the Building of which the Premises are a
part. Therefore, if any monthly installment of the Annual Fixed Rent is not
received by Landlord by the date when due, or if Tenant fails to pay any other
sum of money due hereunder and such failure continues for ten (10) days after
notice thereof by Landlord, Tenant shall pay to Landlord, as additional rent,
the sum of five percent (5%) of the overdue amount as a late charge. Such
amount if not received within said ten (10) days shall also bear interest, as
additional rent, at the Prime Rate as established by the LaSalle Bank of Lisle
plus one and one-half percent (1-1/2%) calculated from the date either the
monthly installment of Annual Fixed Rent is due, or of receipt of said notice
(if for a sum of money other than Annual Fixed Rent), until the date of payment
to Landlord. Landlord's acceptance of any late charge or interest shall not
constitute a waiver of Tenant's default with respect to the overdue amount or
prevent Landlord from exercising any of the other rights and remedies available
to Landlord under this Lease or any law now or hereafter in effect. Further,
in the event such late charge is imposed by Landlord for any two (2) months
during the Term hereof for whatever reason, Landlord shall have the option to
require that, beginning with the first payment of rent due following the
imposition of the second late charge, rent shall no longer be paid in monthly
installments one month in advance but shall be payable three (3) months in
advance on the first (1st) day of each calendar month.
16.17 Time.
Time is of the essence with respect to the performance of every
provision of this Lease in which time or performance is a factor.
16.18 Limitation On Liability.
The obligations of Landlord and Tenant under this Lease do not constitute
personal obligations of the individual partners, directors, officers or
shareholders of Landlord and Tenant,
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and the parties shall not seek recourse against the individual partners,
directors, officers or shareholders of Landlord or Tenant or any of their
personal assets for satisfaction of any liability in respect to this Lease.
16.19 Corporation as Signatory.
If either party executes this Lease as a corporation, then that party and
the persons executing this Lease on behalf of that party represent and warrant
that the individuals executing this Lease on the Corporation's behalf are duly
authorized to execute and deliver this Lease on its behalf in accordance with a
duly adopted resolution of the board of directors of the Corporation, and in
accordance with the By-Laws of the Corporation and that this Lease is binding
upon the Corporation in accordance with its terms.
16.20 Riders and Exhibits.
Riders, exhibits, plans and plats, if any, affixed to this Lease are a
part hereof.
SECTION 17
RIGHTS OF PARTIES HOLDING PRIOR INTERESTS
17.1 Lease Subordinate.
(a) Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and at the election of
Landlord or any first mortgagee with a lien on the Building or any ground
lessor with respect to the Building (any reference in this Lease to a mortgage
shall include a ground lease, and any reference to a mortgagee shall include a
ground lessor), this Lease shall be subject and subordinate at all times to (i)
all ground leases or underlying leases which may now exist or hereafter be
executed affecting the Building or the land upon which the Building is
situated, or both, and (ii) the lien of any first mortgage or first deed of
trust which may now exist or hereafter be executed in any amount for which the
Building, land, ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this Lease.
(b) In the event that any ground lease or underlying lease terminates for
any reasons or any first mortgage or first deed of trust is foreclosed or a
conveyance in lieu of foreclosure with respect to any such mortgage or deed of
trust is made for any reason, Tenant shall, notwithstanding any subordination,
attorn to and become the Tenant of the successor in interest to Landlord.
(c) Tenant shall not subordinate this Lease to any junior mortgage or deed
of trust without the prior written consent of first mortgagee or beneficiary
under the first deed of trust.
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(d) Tenant covenants and agrees to reasonably execute and deliver, upon
demand by Landlord and in the form requested by Landlord, any additional
documents evidencing the priority or subordination of this Lease with respect
to any such ground leases or underlying leases or the lien or any such first
mortgage or first deed of trust. Should Tenant fail to sign and return any
such documents within ten (10) business days of receipt, Tenant shall be in
default, and Landlord may at Landlord's option, terminate this Lease provided
written notice of such termination is received by Tenant prior to Landlord's
receipt of such documents.
17.2 Rights of Holder of Mortgage to Notice of Defaults by Landlord.
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release or
termination of such obligations or a termination of this Lease unless (i)
Tenant shall have first given written notice of Landlord's act or failure to
act to the mortgagees of record, if any, specifying the act or failure to act
on the part of Landlord which could or would give basis to Tenant's rights; and
(ii) such mortgagees after receipt of such notice, have failed or refused to
correct or cure the condition complained of within a reasonable time
thereafter; but nothing contained in this Section shall be deemed to impose any
obligation on any such mortgagees to correct or cure any condition.
"Reasonable time" as used above means and includes a reasonable time to obtain
possession of the mortgaged premises if the mortgagees elect to do so and a
reasonable time to correct or cure the condition if such condition is
determined to exist. Landlord will from time to time notify Tenant of the
names and addresses of such mortgagees.
17.3 Modification for Lender.
If, in connection with obtaining construction, interim or permanent
financing or refinancing for the Building, the lender shall request reasonable
modifications in this Lease as a condition to such financing or refinancing,
Tenant shall not unreasonably withhold, delay or defer its consent thereto,
provided that such modifications do not increase the obligations of Tenant
hereunder or materially adversely affect the leasehold interest created hereby
or Tenant's rights hereunder.
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EXECUTED AS A SEALED INSTRUMENT IN ONE OR MORE COUNTERPARTS ON THE DAY AND YEAR
FIRST ABOVE written.
GROVE LODGE No. 824 ANCIENT FREE AND ACCEPTED MASONS
BY: /s/
----------------------------------
Worshipful Master
ATTEST: /s/
------------------------------
Secretary
"LANDLORD"
MIDWEST BANK OF HINSDALE,
an Illinois Corporation.
BY: /s/ James I. McMahon
----------------------------------
President (Title)
ATTEST: /s/ Mary M. Henthorn
----------------------------------
Executive Vice President (Title)
"TENANT"
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<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
MIDWEST BANC HOLDINGS, INC.
Midwest Bank and Trust Company
Midwest Trust Services, Inc.
Midwest Bank
Midwest One Mortgage Services, Inc.
Midwest Bank of McHenry County
The National Bank of Monmouth
First Midwest Data Corp.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 17, 1997
relating to the consolidated financial statements of Midwest Banc Holdings,
Inc. (formerly First Midwest Corporation of Delaware) and subsidiaries which
appear in such prospectus. We also consent to the reference to us under the
caption "Experts" in such prospectus.
Crowe Chizek and Company LLP
Oak Brook, Illinois
December 19, 1997
